- Wall Street looks set to continue the rebound from Monday's sharp selloff.
- Tech stocks are back in favor as risk-on trade returns.
- As such, I used InvestingPro to find high-quality, undervalued tech shares with strong upside ahead.
- Looking for more actionable trade ideas? Try InvestingPro for under $8/Month.
The recent recovery in risk sentiment has investors breathing a sigh of relief, coming just two days after the S&P 500 suffered its worst daily decline since late 2022. As risk-on trade returns, tech stocks are once again drawing investor interest.
Source: Investing.com
Using InvestingPro, I have identified three high-quality tech stocks worth considering.
Each of these companies has strong fundamentals and significant upside potential according to AI-powered quantitative models in InvestingPro.
With solid financial health scores and a favorable market outlook, these stocks are well-positioned to deliver robust returns amid improving risk appetite.
Source: InvestingPro
Let's delve into the top three tech stocks to consider as market sentiment begins to shift.
1. Adobe
- Tuesday’s Closing Price: $514.20
- Fair Value Estimate: $595.47 (+15.8% Upside)
- Market Cap: $228 Billion
Adobe (NASDAQ:ADBE) is a global leader in digital media and digital marketing solutions. Its flagship products, such as Photoshop, Illustrator, and Acrobat, are widely used by creative professionals and enterprises.
Adobe's Creative Cloud and Experience Cloud platforms offer a comprehensive suite of tools and services for content creation, marketing, analytics, and e-commerce.
ADBE stock ended Tuesday’s session at $514.20, not far from its 2024 low of $433.97 reached on May 31. At current levels, the San Jose, California-based software-as-a-service powerhouse has a market cap of $228 billion.
Source: Investing.com
Despite worries over an increasingly competitive landscape, Adobe continues to benefit from the ongoing digitization of businesses and the growing demand for digital content creation tools. Adobe’s subscription-based model provides a steady revenue stream, and its innovative product offerings keep it at the forefront of the industry.
• ‘Fair Value’ Upside Potential:
According to InvestingPro’s AI-powered ‘Fair Value’ models, Adobe is extremely undervalued with a +15.8% upside potential to its Fair Value price estimate of $595.47.
Source: InvestingPro
This sizable upside, combined with its leading market position and innovative product portfolio, makes Adobe an attractive investment during periods of heightened risk sentiment.
• Company Health Score:
Adobe's strong ‘Financial Health Score’ is characterized by its robust revenue growth and high profit margins. The company consistently generates strong free cash flow, which supports its growth initiatives and shareholder returns.
2. NXP Semiconductors
- Tuesday’s Closing Price: $236.76
- Fair Value Estimate: $262.41 (+10.8% Upside)
- Market Cap: $60.3 Billion
NXP Semiconductors NV (NASDAQ:NXPI) is a leading global semiconductor manufacturer specializing in the production of chips for the automotive, industrial, mobile, and communications infrastructure markets.
The Netherlands-based company’s products are integral to applications such as advanced driver assistance systems (ADAS), secure connected cars, cybersecurity, and Internet of Things (IoT).
NXPI stock ended at $236.76 yesterday, not far from its 2024 peak of $296.08 reached on July 17. At its current valuation, NXP has a market cap of $60.3 billion, making it the second-largest European semiconductor company after ARM Holdings (LON:ARM).
Source: Investing.com
The expanding IoT market and the proliferation of connected devices create significant opportunities for NXP. The company’s expertise in secure connectivity and edge processing positions it well to capitalize on this growing trend.
• ‘Fair Value’ Upside Potential:
Current ‘Fair Value’ price target estimates indicate that NXPI stock is trading at a bargain valuation. InvestingPro’s AI models predict a +10.8% potential upside. That would bring shares closer to their ‘Fair Value’ price target of $262.41.
Source: InvestingPro
This substantial upside, combined with its leadership in automotive semiconductors and strong demand in IoT and connectivity markets, makes NXP an attractive investment in a risk-on environment.
• Company Health Score:
NXP Semiconductors 'Financial Health Score', as assessed by InvestingPro, reflects its robust financial position, healthy balance sheet, strong cash-generating capabilities, as well as its promising earnings and sales growth trajectory.
Furthermore, InvestingPro also mentions that the company has raised its annual dividend payout for six consecutive years, a testament to its continuous effort to return capital to shareholders.
3. Autodesk
- Tuesday’s Closing Price: $234.23
- Fair Value Estimate: $268.26 (+14.5% Upside)
- Market Cap: $50.5 Billion
Autodesk (NASDAQ:ADSK) is a global software company that provides design software and services for the architecture, engineering, construction, manufacturing, media, and entertainment industries.
Its flagship product, AutoCAD, is widely used for 2D and 3D design and drafting.
ADSK shares closed at $234.23 last night, just above their year-to-date low of $195.32 touched on May 31. The San Francisco, California-based software maker has a market cap of $50.5 billion at its current valuation.
Source: Investing.com
The architecture, engineering, and construction (AEC) industry is experiencing robust growth, driven by increasing infrastructure investments and the adoption of digital technologies. Autodesk is well-positioned to capitalize on this trend with its comprehensive AEC product suite.
• ‘Fair Value’ Upside Potential:
The present valuation of Autodesk suggests it is a bargain, as assessed by the AI-backed quantitative models in InvestingPro. There's a possibility of a +14.5% increase from last night’s closing price, moving it closer to its 'Fair Value' set at $268.26 per share.
Source: InvestingPro
This significant upside, coupled with its strong market position and transition to a more stable subscription-based revenue model, makes Autodesk a compelling investment as risk sentiment improves.
• Company Health Score:
As per InvestingPro research, Autodesk’s healthy profitability outlook, growing net income, impressive gross profit margins and robust balance sheet metrics earn it a noteworthy ‘Financial Health Score’ of 3 out of 5.
Conclusion
As risk sentiment recovers, investing in high-quality tech stocks like Adobe, Autodesk, and NXP Semiconductors can provide significant upside potential.
Each of these companies is undervalued according to InvestingPro’s AI-powered models and has strong tailwinds supporting their growth.
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Disclosure: At the time of writing, I am long on the S&P 500, and the Nasdaq 100 via the SPDR S&P 500 ETF (SPY (NYSE:SPY)), and the Invesco QQQ Trust ETF (QQQ). I am also long on the Technology Select Sector SPDR ETF (NYSE:XLK).
I regularly rebalance my portfolio of individual stocks and ETFs based on ongoing risk assessment of both the macroeconomic environment and companies' financials.
The views discussed in this article are solely the opinion of the author and should not be taken as investment advice.
Follow Jesse Cohen on X/Twitter @JesseCohenInv for more stock market analysis and insight.