The technology industry stands poised for significant expansion this year, catalyzed by a series of transformative trends. These developments are spurring innovation waves and forging the roadmap of the future.

Against this backdrop, investors could buy fundamentally robust tech stocks Canon Inc. (CAJPY), Hewlett Packard Enterprise Company (HPE), and M-tron Industries, Inc. (MPTI) to garner returns now and beyond.

The rapid ascension of digital transformation is perceptively influencing a range of sectors. This dynamic shift has significantly enhanced the quality of life, offering affordable access to previously unreachable services and instigating an escalating demand for sophisticated technical solutions.

Moreover, underscored by the Technology Select Sector SPDR Fund's (XLK) impressive 46.3% return over the past year – a mark that notably exceeds the broader S&P 500’s gain of 19.4% – the tech industry momentum substantiates itself.

This momentum heavily rides on the widespread adoption of advanced technologies, including Artificial Intelligence (AI), the Internet of Things (IoT), Augmented and Virtual Reality (AR&VR), 5G, and machine learning. The use of these high-end technologies considerably propels the growth narrative in the tech sector.

AI hardware is making palpable inroads across various industries. The rising adoption of robotics and AI in several sectors is projected to fuel the demand for associated hardware. Consequently, the global AI in the hardware market is anticipated to reach $248.9 billion by 2030, growing at a CAGR of 25.5%.

Moreover, the global hardware market is projected to reach $191.03 billion by 2029, growing at a CAGR of 7.9%.

With these favorable trends in mind, let's delve into the fundamentals of the three technology stock picks.

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 November 28, 2023, CAJPY and Cleveland Clinic partnered to develop innovative medical imaging and healthcare IT technologies for improved diagnosis and patient outcomes. They aim to establish a comprehensive imaging research center in Cleveland’s Fairfax neighborhood, focusing on cardiology, neurology, and musculoskeletal medicine, fostering local and global research collaborations.

Toshio Takiguchi, Senior Managing Executive Officer, Head of Medical Group at CAJPY, said, “Under Canon’s ‘Made for Life’ philosophy, we are dedicated to improving the wellbeing of patients everywhere through our innovations in technology This collaboration with Cleveland Clinic allows us to use our mutual strengths to enable a future that delivers on this promise.”

In terms of the trailing-12-month net income margin, CAJPY’s 6.44% is 174.5% higher than the 2.35% industry average. Likewise, its 8.93% trailing-12-month EBIT margin is 81.4% higher than the 4.92% industry average. Additionally, its 8.38% trailing-12-month Return on Common Equity is 642.5% higher than the 1.13% industry average.

The company pays an annual dividend of $0.93 per share translates to a dividend yield of 3.65% on the current share price. Its four-year average yield is 3.89%.

CAJPY’s trailing-12-month cash from operations of $2.30 billion is significantly higher than the industry average of $75.91 million. Its trailing-12-month EBITDA and net income margins of 14.55% and 6.44% are 57.2% and 232.2% higher than the industry averages of 9.25% and 1.94%, respectively.

For the fiscal third quarter that ended September 30, 2023, CAJPY’s net sales and operating profit increased 2.9% and 1.5% year-over-year to $6.83 billion and $550.83 million, respectively. Moreover, its income before income taxes stood at $582.13 million, up 10.4% from the prior-year quarter.

For the same quarter, its net income attributable to CAJPY and net income attributable to CAJPY shareholders per share stood at $414.23 million and $0.42, up 14.8% and 18.4% from the year-ago quarter, respectively.

Street expects CAJPY’s revenue for the fiscal year of 2023 (ended December 2023) to increase 115.1% year-over-year to $28.69 billion.

The stock has gained 16.2% over the past year to close the last trading session at $25.43. Over the past nine months, it has gained 15.8%.

CAJPY’s POWR Ratings reflect its positive prospects. The stock has an overall A rating, equating to a Strong Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 distinct factors, with each factor weighted to an optimal degree.

The stock has a B grade for Value, Momentum, Stability, and Quality. Within the A-rated Technology – Hardware industry, it is ranked #6 out of 36 stocks.

To see additional POWR Ratings for Growth and Sentiment for CAJPY, click here.

Hewlett Packard Enterprise Company (HPE)

HPE provides clients with seamless data capture, analysis, and action solutions. Its offerings span leasing, financing, IT consumption, utility programs, and asset management services. The company operates through six segments: Compute; HPC & AI; Storage; Intelligent Edge; Financial Services; and Corporate Investments and Other.

On January 9, HPE acquired Juniper, a leader in AI-native networks, in an all-cash transaction for $40 per share, representing an equity value of approximately $14 billion. The acquisition is expected to double HPE’s networking business, creating a new networking leader with a comprehensive portfolio that presents customers and partners with a compelling new choice to drive business value.

On December 19, 2023, HPE and The University of Stuttgart announced an agreement to build two new supercomputers at the High-Performance Computing Center of the University of Stuttgart (HLRS). The total combined cost for them is €115 million ($125 million).

In the first stage, a transitional supercomputer called Hunter will begin operation in 2025. This will be followed in 2027 with the installation of Herder, an exascale system. Hunter and Herder will offer researchers world-class infrastructure for simulation, AI, and high-performance data analytics (HPDA) to power cutting-edge academic and industrial research in computational engineering and the applied sciences.

On January 11, HPE paid a quarterly dividend of $0.13 to the shareholders. Its annualized dividend of $0.52 per share translates to a dividend yield of 3.40% on the current share price. Its four-year average yield is 3.51%. HPE’s dividend payments have grown at a 3.5% CAGR over the past five years.

HPE’s trailing-12-month cash from operations of $4.43 billion is significantly higher than the industry average of $75.91 million. Its trailing-12-month EBITDA and net income margins of 17.56% and 6.95% are 89.8% and 258.6% higher than the industry averages of 9.25% and 1.94%, respectively.

For the fiscal fourth quarter that ended October 31, 2023, HPE’s net revenue and non-GAAP earnings from operations stood at $7.35 billion and $710 million, respectively. Moreover, its free cash flow increased 16.3% year-over-year to $2.32 billion.

For the same quarter, its non-GAAP net earnings and non-GAAP net earnings per share stood at $680 million and $0.52, respectively.

Street expects HPE’s revenue for the fiscal year of 2024 (ending October 2024) to increase 1.4% year-over-year to $29.55 billion. Its EPS is expected to be $1.93 for the same period. The company surpassed consensus EPS estimates in each of the trailing four quarters, which is impressive.

The stock has declined 1.8% intraday to close the last trading session at $15.04.

HPE’s solid fundamentals are reflected in its POWR Ratings. The stock has an overall rating of B, translating to Buy in our proprietary rating system.

HPE has an A grade for Value and a B for Momentum. Within the Technology – Communication/Networking industry, it is ranked #3 out of 45 stocks.

Beyond what we’ve stated above, we have also rated the stock for Growth, Stability, Sentiment, and Quality. Get all ratings of HPE here.

M-tron Industries, Inc. (MPTI)

MPTI designs, manufactures, and markets frequency and spectrum control products. Its portfolio is divided into two product groupings: Frequency Control and Spectrum Control. 

MPTI’s trailing-12-month asset turnover ratio of 1.71x is 177.1% higher than the industry average of 0.62x. Its trailing-12-month ROCE and ROTA of 19.64% and 16.55% are significantly higher than the industry averages of 1.67% and 0.60%, respectively.

For the fiscal third quarter that ended September 30, 2023, MPTI’ revenues and operating income increased 29.4% and 222.7% year-over-year to $10.89 million and $2.03 million, respectively.

For the same quarter, its net income and net income per share stood at $1.59 million and $0.57, up 215.3% and 200% from the prior-year quarter, respectively. Moreover, its adjusted EBITDA and adjusted EBITDA per share stood at $2.34 million and $0.85, up 166.7% and 157.6% from the year-ago quarter.

Street expects MPTI’s revenue and EPS for the fiscal fourth quarter of 2023 (ended December 2023) to increase 29.1% and 345.5% year-over-year to $11.20 million and $0.43, respectively. The company surpassed consensus revenue and EPS estimates in each of the trailing four quarters.

The stock has gained 273.7% over the past six months to close the last trading session at $42.23. Over the past year, it has gained 334.9%.

MPTI’s robust prospects are reflected in its POWR Ratings. The stock has an overall B rating, equating to Buy in our proprietary rating system.

MPTI has an A grade for Quality and a B for Growth and Sentiment. It is ranked #7 out of 39 stocks within the B-rated Technology - Electronics industry.

Click here for the additional POWR Ratings for MPTI (Value, Momentum, and Stability).

What To Do Next?

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CAJPY shares rose $0.11 (+0.43%) in premarket trading Thursday. Year-to-date, CAJPY has declined -0.66%, versus a -0.64% rise in the benchmark S&P 500 index during the same period.

The stock market dynamics sparked Sristi's interest during her school days, which led her to become a financial journalist. Investing in undervalued stocks with solid long-term growth prospects is her preferred strategy. Having earned a master's degree in Accounting and Finance, Sristi hopes to deepen her investment research experience and better guide investors.

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