The Dow Jones Industrial Average, S&P 500 and Nasdaq Composite opened flat on Thursday as boosts from stronger-than-expected retail sales were offset by losses in heavyweight technology stocks.
After seven straight months of gains, the S&P 500 has recorded declines so far for the current month, sliding roughly 0.9%. This is not surprising, however, as September has historically been a down month for markets. According to CFRA Research, the market has recorded an average decline of 0.56% for the month since 1945.
The Dow is also in the red for the month, having fallen around 1.5%.
As a result, investors may be looking to take advantage of the dip by buying undervalued tech companies.
Using the GuruFocus Value Line, a unique method of estimating the intrinsic value of an individual stock, investors can find potential value opportunities. Based on the popular Peter Lynch value line, which compares a stock’s current price to how much its earnings per share would be worth if it traded at a price-earnings ratio of 15, the GF Value Line takes more than price into account when determining value. It also considers a company’s historical price-earnings, price-book, price-sales and price-to-free cash flow ratios, an adjustment factor based on past returns and growth as well as future estimates of the business’ performance.
As of Sept. 16, GuruFocus’ All-in-One Screener, a Premium feature, found tech companies that were modestly undervalued, had a price-to-GF value between 0.4 and 0.8 and a predictability rank of at least two out of five stars were CDK Global Inc. (CDK, Financial), iRobot Corp. (IRBT, Financial) and FD Technologies PLC (FDRVF, Financial).
CDK Global
A provider of automotive dealership management solutions headquartered in Hoffman Estates, Illinois, CDK Global (CDK, Financial) has a $5.14 billion market cap; its shares were trading around $42.56 on Thursday with a price-earnings ratio of 5.05, a price-book ratio of 10.75 and a price-sales ratio of 2.97.
Based on a GF Value of $54.90 and a price-to-GF Value ratio of 0.77, the stock appears to be modestly undervalued.
GuruFocus rated the company’s financial strength 4 out of 10. Despite having weak interest coverage, the high Altman Z-Score of 3.66 indicates it is in good standing. The return on invested capital also overshadows the weighted average cost of capital, meanings good value creation is occurring as the company grows.
CDK Global’s profitability fared better, scoring an 8 out of 10 rating, driven by an expanding operating margin, strong returns on assets and capital that outperform a majority of competitors and a moderate Piotroski F-Score of 6, which suggests business conditions are stable. The company’s three-star predictability rank is on watch, however, despite recording steady earnings and revenue growth. According to GuruFocus, companies with this rank return an average of 8.2% annually over a 10-year period.
Of the gurus invested in CDK Global, Chuck Royce (Trades, Portfolio) has the largest position with 0.23% of its outstanding shares. Steven Cohen (Trades, Portfolio) also owns the stock.
IRobot
Bedford, Massachusetts-based iRobot (IRBT, Financial), which manufactures Roomba vacuums, has a market cap of $2.26 billion; its shares were trading around $80.73 on Thursday with a price-earnings ratio of 20.76, a price-book ratio of 2.9 and a price-sales ratio of 1.42.
According to a GF Value of $112.13 and a price-to-GF Value ratio of 0.71, the stock is modestly undervalued currently.
The company’s financial strength was rated 7 out of 10 by GuruFocus. In addition to a comfortable level of interest coverage, the robust Altman Z-Score of 6.93 indicates the company is in good standing even though assets are building up at a faster rate than revenue is growing. The ROIC also eclipses the WACC, indicating good value creation is occurring.
The company’s profitability scored an 8 out of 10 rating on the back of strong margins and returns that outperform a majority of industry peers. IRobot is also supported by a high Piotroski F-Score of 7, suggesting operations are healthy, along with steady earnings and revenue growth. The three-star predictability rank is on watch, however.
With a 9.68% stake, PRIMECAP Management (Trades, Portfolio) is the company’s largest guru shareholder. Baillie Gifford (Trades, Portfolio), Ray Dalio (Trades, Portfolio), Paul Tudor Jones (Trades, Portfolio), Pioneer Investments, John Hussman (Trades, Portfolio), Prem Watsa (Trades, Portfolio), Joel Greenblatt (Trades, Portfolio) and Lee Ainslie (Trades, Portfolio) also have positions in iRobot.
FD Technologies
British software company FD Technologies (FDRVF, Financial), which provides products and consulting services to finance, technology and energy corporations, has a $900.15 million market cap; its shares were trading around $34.20 on Thursday with a price-earnings ratio of 77.19, a price-book ratio of 3.75 and a price-sales ratio of 2.92.
Trading with a GF Value of $42.81 and a price-to-GF Value ratio of 0.8, the stock appears to be modestly undervalued currently.
GuruFocus rated FD Technologies’ financial strength 5 out of 10. As a result of issuing new long-term debt over the past several years, the company has poor interest coverage. The Altman Z-Score of 3.72, however, suggests it is in good standing. The ROIC has also fallen below the WACC, so there may be issues with creating value.
The company’s profitability scored an 8 out of 10 rating. Although the operating margin is in decline, FD Technologies’ returns outperform around half of its competitors. It is also supported by a moderate Piotroski F-Score of 5, but the five-star predictability rank is on watch as a result of declining revenue per share. GuruFocus says companies with this rank return an average of 12.1% annually.
No gurus are currently invested in U.S.-listed shares of FD Technologies.
