The rise of innovative technologies and the growing popularity of digital transformation initiatives have substantially boosted the appeal of specialized hardware solutions. The need for advanced hardware to fully realize the potential of software and other new-age technologies is boosting the tech industry's prospects.

However, not all tech stocks are worth considering right now. I think waiting for a better entry point in Apple, Inc. (AAPL) could be wise. On the other hand, investors could instead look to invest in Murata Manufacturing Co., Ltd. (MRAAY), Canon Inc. (CAJPY), and TransAct Technologies Incorporated (TACT), which are outperforming AAPL.

Before diving deeper into the fundamentals of these stocks, let’s discuss why the tech hardware industry is expected to perform well and why adding AAPL to one’s watchlist could be wise.

The IT hardware industry is evolving as companies use technology to innovate, engage customers, and increase efficiency. Software works optimally with advanced hardware to ensure seamless functioning. Growing tech usage and rapid digital transformation projects drive the industry's growth. Advanced hardware is becoming increasingly necessary with the rise in hybrid work culture.

Businesses that invest in cutting-edge gear and hardware see increased efficiency and productivity. According to Gartner, global IT spending is expected to reach $4.69 trillion in 2023, up 3.5% over the previous year. In 2023, spending on devices will likely fall by 10% compared to last year, but it will increase by 4.8% to $722.47 billion the following year.

The IT hardware market is projected to grow at a CAGR of 7.9% to reach $177.11 billion by 2028. Adopting emerging technologies like artificial intelligence, machine learning, and the Internet of Things drives the demand for specialized hardware to meet the complex processing and data storage requirements.

AAPL surpassed the consensus EPS and revenue estimates during the last reported quarter. Its EPS beat the consensus estimate by 4.8%, while its revenue came 0.2% above analyst estimates. Meanwhile, its iPhone revenue set the September quarter record, and Services revenue soared to a new all-time high. However, its revenue for the fourth quarter declined 1% year-over-year to $89.50 billion.

Its Products revenue also declined 5.3% year-over-year to $67.18 billion. Mac and iPad sales were down 33.8% and 10.2% year-over-year to $7.61 billion and $6.44 billion, respectively. In addition, its Wearables, Home and Accessories sales decreased 3.4% year-over-year to $9.32 billion. The company also saw a drop of 9.5% year-over-year in its cash generated from operating activities for fiscal 2023.

AAPL is also trading at an expensive valuation. In terms of forward EV/EBITDA, AAPL’s 22.30x is 53.9% higher than the 14.49x industry average. Likewise, its 7.40x forward EV/Sales is 180% higher than the 2.64x industry average. Its 40.86x forward Price/Book is 968.8% higher than the 3.82x industry average.

AAPL’s stock has gained 28.4% over the past nine months and 46.7% year-to-date to close the last trading session at $190.64.

While AAPL’s long-term growth prospects look exciting, it is currently trading at an expensive valuation. Moreover, the slowdown in smartphone sales could disrupt the growth of its most popular product, the iPhone.

Considering this backdrop, let’s discuss the fundamentals of the aforementioned stocks from the Technology Hardware industry, starting with number 3.

Stock #3: Murata Manufacturing Co., Ltd. (MRAAY)

Headquartered in Nagaokakyo, Japan, MRAAY designs, manufactures, and sells ceramic-based passive electronic components and solutions in Japan and internationally. It operates through Components, Devices and Modules, and other segments. The company offers capacitors, inductors, noise suppression products/EMI suppression filters/ESD protection devices, resistors, thermistors, sensors, etc.

On August 30, 2023, MRAAY announced the completion of a new production building in Lien Chieu District, Da Nang City, Vietnam. This building will provide the infrastructure to manufacture inductor coils for cars and electronic devices in the medium to long-term capacity.

On August 1, 2023, MRAAY’s manufacturing subsidiary, Philippine Manufacturing Co., announced the construction of a new building in August 2023. The construction of the new production building aimed at developing the capacity to meet the increased demand for multilayer ceramic capacitors over the medium and long term.

In terms of the trailing-12-month net income margin, MRAAY’s 13.86% is 683.5% higher than the 1.77% industry average. Its Return on Common Equity and Return on Total Assets of 8.87% and 7.23%, respectively, are significantly higher than their industry averages of 0.80% and 0.09%. Its 14.44% trailing-12-month Capex/Sales is 514.4% higher than the 2.35% industry average.

MRAAY’s revenues for the second quarter that ended September 30, 2023, came in at ¥442.66 billion ($2.99 billion). Its operating profit for the period came in at ¥88.81 billion ($600.67 million). The company’s profit for the period came in at ¥74.98 billion ($507.14 million).

Additionally, its net cash provided by operating activities for six months ended September 30, 2023, increased 23.1% year-over-year to ¥191.66 billion ($1.30 billion).

Analysts expect MRAAY’s revenue for the quarter ending March 31, 2024, to increase 1.7% year-over-year to $2.59 billion. The stock has gained 17% year-to-date to close the last trading session at $9.59.

MRAAY’s POWR Ratings reflect its solid prospects. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.

It is ranked #23 out of 37 stocks in the B-rated Technology Hardware industry. It has a B grade for Quality. Click here to see the additional ratings of MRAAY’s for Growth, Value, Momentum, Stability, and Sentiment.

Stock #2: Canon Inc. (CAJPY)

Headquartered in Tokyo, Japan, CAJPY manufactures and sells office multifunction devices (MFDs), laser and inkjet printers, cameras, medical equipment, and lithography equipment worldwide. The company operates through a Printing Business Unit, an Imaging Business Unit, a Medical Business Unit, an Industrial Business Unit, and other segments.

On July 12, 2023, CAJPY announced the development of a process for sorting plastic pieces based on their material, aiming to improve plastic recycling efforts. They are using tracking type Raman spectroscopy technology, which allows for the accurate identification of materials, including challenging black plastic pieces and those mixed with other colors.

CAJPY plans to introduce plastic sorting equipment using this method in the first half of 2024. This technology will contribute to more efficient plastic recycling and support a circular economy.

In terms of the trailing-12-month net income margin, CAJPY’s 6.44% is 264.1% higher than the 1.77% industry average. Likewise, its 8.93% trailing-12-month EBIT margin is 86.7% higher than the industry average of 4.78%. Furthermore, the stock’s Return on Total Assets of 4.78% is significantly higher than the industry average of 0.09%.

CAJPY’s net sales for the second quarter ended September 30, 2023, increased 2.9% year-over-year to ¥1.03 trillion ($6.93 billion). Its operating profit rose 1.5% year-over-year to ¥82.62 billion ($558.83 million). The company’s net income attributable to CAJPY increased 14.8% year-over-year to ¥62.13 billion ($420.22 million). In addition, its EPS came in at ¥62.62, representing an increase of 18.4% year-over-year.

Street expects CAJPY’s revenue for the second quarter ending June 30, 2024, to increase 1.8% year-over-year to $7.47 billion. Over the past nine months, the stock has gained 14.7% to close the last trading session at $25.06.

It’s no surprise that CAJPY has an overall rating of B, which translates to a Buy in our proprietary rating system.

It has a B grade for Value, Stability, and Quality. Within the same industry, it is ranked #9. Beyond what we stated above, we also have given CAJPY grades for Growth, Momentum, and Sentiment. Get all the CAJPY ratings here.

Stock #1: TransAct Technologies Incorporated (TACT)

TACT designs, develops, and markets transaction-based and specialty printers and terminals. The company offers thermal printers and terminals to generate labels, coupons, and transaction records. The company also provides consumables products, as well as replacement parts and accessories, maintenance and repair services, and refurbished printers.

In terms of the trailing-12-month net income margin, TACT’s 6.56% is 270.8% higher than the 1.77% industry average. Likewise, its 8.69% trailing-12-month EBIT margin is 81.7% higher than the industry average of 4.78%. Furthermore, the stock’s 13.99% trailing-12-month Return on Common Equity is substantially higher than the industry average of 0.80%.

For the third quarter ended September 30, 2023, TACT’s net sales amounted to $17.19 million, while its gross profit increased 8.8% year-over-year to $8.92 million. Its adjusted operating income increased 207.8% over the prior year quarter to $1.19 million. Its adjusted net income rose 71.6% year-over-year to $906 million. Also, its adjusted EPS came in at $0.09, representing an increase of 80% year-over-year.

TACT’s revenue for fiscal 2023 is expected to increase 25.5% year-over-year to $72.97 million. It surpassed the consensus EPS estimates in each of the trailing four quarters. Over the past year, the stock has gained 7.7% to close the last trading session at $6.75.

TACT’s POWR Ratings reflect this promising outlook. It has an overall rating of A, equating to a Strong Buy in our proprietary rating system.

It has an A grade for Value and Sentiment and a B for Quality. Within the Technology - Hardware industry, it is ranked #5. To see TACT’s additional ratings for Growth, Momentum and Stability, click here.

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MRAAY shares were unchanged in premarket trading Wednesday. Year-to-date, MRAAY has gained 16.95%, versus a 20.27% rise in the benchmark S&P 500 index during the same period.

Since he was in grade school, Dipanjan was interested in the stock market. This led to him obtaining a master’s degree in Finance and Accounting. Currently, as an investment analyst and financial journalist, Dipanjan has a strong interest in reading and analyzing emerging trends in financial markets.

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