2 tech stocks worth buying in hopes of a U.S. Fed pivot jump
- Nasdaq up 12.6% from its October 13 bear market low
- High-growth tech stocks have posted impressive rallies
- Buy Block and Splunk as inflation fears recede and Fed pivot hopes rise
The has recorded a notable rebound since falling to its lowest level since July 2020 last month. The tech-heavy index is now up more than 12% from its mid-October lows, bolstering confidence that the sector has bottomed out after its year-long selloff .
The recent rally was fueled by signs that may have peaked, raising hopes that the Federal Reserve will become less aggressive on .
Given that, I think Square-parent Block (NYSE:) and cloud software specialist Splunk (NASDAQ:) are both in prime position to see their respective stocks extend their rally in the months ahead. Both tech companies still have plenty of room to grow their respective businesses, making them solid long-term investments with solid prospects for future growth.
- Performance since the beginning of the year: -54.6%
- Percentage of ATH: -74.6%
- Market capitalization: $43.9 billion
Block has seen a strong rebound since its stock fell to the lowest level since April 2020 on November 3, rising around 20% so far this month. However, shares of the San Francisco, Calif.-based fintech company remain down 54.6% year-to-date (ytd).
Trading around 75% below its August 2021 all-time high, investors should consider adding Block to their portfolios amid strong momentum in its booming Cash App and Square retail business.
The mobile payment specialist led by former Twitter CEO Jack Dorsey posted revenue that beat consensus expectations earlier this month, despite the challenging macro environment.
Block reported gross profit of $774 million for its Cash App business and $783 million in gross profit for its Square merchant business, up 51% and 29% respectively on an annualized basis. In total, the company posted gross profit of $1.57 billion in the third quarter, up 38% year-over-year (year-on-year).
The fintech powerhouse said it had its highest ever quarterly cash inflows, meaning more users are depositing money into their Cash App accounts. The app now has 49 million monthly active users (MAUs), up 22.5% year-over-year.
Dorsey said in a letter to shareholders that the company is showing strong growth, even as other payments companies warn of impending downturns due to ongoing macroeconomic headwinds.
Unsurprisingly, Wall Street has a long-term bullish view on SQ shares, with 41 out of 44 analysts polled by invest.com evaluating it as “buy” or “hold”.
The average fair value of Block’s shares at InvestPro implies a 25.5% increase.
Given Square’s owner’s leadership position in the mobile payment processing industry, I think Block could finally see its stock bottom after a sharp sell-off that saw it lose more than half of its market value in 2022. .
- Performance since the beginning of the year: -26.5%
- Percentage of ATH: -62.3%
- Market capitalization: $13.8 billion
Splunk has seen its shares fall 26.5% this year as the data analytics software company fell out of favor with investors. But stocks have rebounded significantly since hitting a 52-week low of $65 in mid-October, rising nearly 31% in the past month. At current levels, the San Francisco, Calif.-based software company is still around 62% off its September 2020 all-time high.
Splunk is poised to extend its recovery in the coming months due to favorable business trends as it completes its transition from a perpetual license to a software-as-a-service subscription-based model. Moving to a SaaS business model will likely see the company generate higher annual recurring revenue, greater profitability, and improved free cash flow in future quarters.
The 41 analysts interviewed by invest.com rate the stock as “bought” or “neutral”.
Quantitative models of InvestPro point to a gain of 32.8% over the next 12 months.
Splunk releases its financial results after the US market closes on Wednesday, November 30. Consensus calls for EPS of $0.25, a significant improvement from a loss of $0.37 last year, while revenue is expected to rise 27.5% year-over-year.
Wall Street analysts are extremely optimistic ahead of the report according to InvestPro with analysts raising their EPS estimates 32 times over the past 90 days to reflect a whopping +182.7% increase over their initial expectations.
Activist investor Starboard Value, which often targets underperforming software companies, last month disclosed a nearly 5% stake in Splunk. “We believe there are significant upsides at Splunk,” said Starboard CEO Jeffrey Smith, noting that the company could increase free cash flow margins and maintain a strong growth profile that could enable Splunk to generate $8 to $9 of free cash flow per share by 2025. .
Smith added that Splunk’s business made it very attractive as a potential takeover candidate. To add:
“This dynamic creates multiple ways to earn and makes investing in Splunk even more attractive.”
In February, Splunk was valued at $18.4 billion and the Wall Street Journal reported that Cisco (NASDAQ:) had made a bid of more than $20 billion to acquire the company, but talks fell through.
Disclosure: At the time of writing, Jesse is long on the Dow Jones Industrial Average and S&P 500 via SPDR Dow ETF and SPDR S&P 500 ETFs. It is also long on the Energy Select Sector SPDR ETF. The views discussed in this article are solely the opinion of the author and should not be taken as investment advice.