Why You Should Buy These 2 Technology Stocks on October Weakness

Blackberry Ltd. (TSX:BB) (NYSE:BB) and Sierra Wireless Inc. (TSX:SW) (NASDAQ:SWIR) stand to benefit greatly from the internet of things, and with both stocks trading at attractive valuations, investors would do well to add them to their portfolios.

| More on:
Dots over the earth connecting the world

Image source: Getty Images.

The following two tech stocks will benefit greatly from the internet of things revolution, and as such, investors should consider them for their portfolios.

BlackBerry Ltd. (TSX:BB)(NYSE:BB) stock has been characterized by extreme volatility this year, and while the stock has been a volatile one in the past, this year has shown volatility in the high-end of its history.

Today, BlackBerry stock is down 20% year-to-date and is up 45% from 2016 lows.

There are three major reasons why I’m a buyer of BlackBerry stock at these levels.

The first relates to the fact that the company’s recurring revenue is increasing as a percent of total revenue.

In the first quarter of 2018, recurring revenue accounted for 86% of total revenue; in the second quarter, it accounted for 81%, and management expects this number to increase to over 90% within a year.

The second reason that I’m bullish on the stock is that BlackBerry has won a number of design wins in the automotive software business, an emerging business that has a lot of growth ahead of it.

This was evident in the second quarter of 2018, as growth in BlackBerry Technology Solutions revenue was at a record high, driven by growth in the automotive segment.

Finally, BlackBerry still has a very strong balance sheet, with more than $2 billion in cash, leaving the door open for strong future growth organically or via acquisitions.

Sierra Wireless Inc. (TSX:SW)(NASDAQ:SWIR) is trading at $24.12, less than half what it was trading at back in 2015 and at multiples that are a far cry from the good old days of overvaluation.

In fact, now we have swung to a situation where the stock is grossly undervalued, especially if we consider the traction that has been made by the company in the auto business, a healthy “internet of things” demand environment, and the company’s strong balance sheet and free cash flow generation.

Sierra Wireless stock has been hit due to its Numerex acquisition, which will be mildly dilutive to earnings in 2018, uncertainty with regard to the new CEO (now solved), and disappointing organic growth rates.

But longer term, the Numerex acquisition will give the company exposure to higher margins (54% versus 34% gross margin for Sierra’s core revenue), and recurring revenue on a go forward basis.

The company is well-positioned in the auto industry, with the company’s connect car wins with Volkswagen and other large OEMs boosting revenue in the second half of the year and certainly over the long term as well.

The market for connected cars remains big and although it’s a competitive market, Sierra has an increasingly strong position due to its technology.

And with estimates calling for a four-fold increase in the number of connected machines by 2020, there is plenty of growth to be had.

In the second quarter of 2018, revenue growth was 16% (9% organic growth), free cash flows were strong, and the company maintained its stellar balance sheet with negligible debt and $74 million cash.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Karen Thomas has no position in any of the stocks mentioned. David Gardner owns shares of Sierra Wireless. The Motley Fool owns shares of BlackBerry and Sierra Wireless. BlackBerry is a recommendation of Stock Advisor Canada.

More on Tech Stocks

Tech Stocks

2 Cheap Tech Stocks to Buy After Their Impressive Earnings

Given their healthy growth prospects and discounted stock prices, I am bullish on these two tech stocks.

Read more »

value for money
Tech Stocks

3 Tech Stocks Trading for a Significant Discount

These tech stocks have corrected quite a lot, despite the strength in their business, making them attractive long-term bets.

Read more »

Shopping and e-commerce
Tech Stocks

Shopify Stock: What Investors Should Do if it Falls to $300

Shopify (TSX:SHOP)(NYSE:SHOP) stock fell another 10% on Tuesday, as it nears the $300 range. So, what happens if that comes…

Read more »

consider the options
Tech Stocks

Will Enthusiast Gaming Stock Change Course After the Activist Attack?

Last week's cheer in Enthusiast Gaming stock is reversing this week.

Read more »

sale discount best price
Tech Stocks

Tech Selloff: 3 Bargains to Pick Up Now

Thanks to the current slump, you can buy many tech stocks at a discount price or valuation that's usually quite…

Read more »

TSX Today
Tech Stocks

TSX Today: What to Watch for in Stocks on Wednesday, May 25

Apart from bank earnings, TSX investors may want to keep an eye on the FOMC meeting minutes today.

Read more »

Wireless technology
Tech Stocks

3 Tech Stocks Worth Buying Today

Looking for tech stocks to add to your portfolio? Here are three top picks!

Read more »

Question marks in a pile
Tech Stocks

Should Canadians Be Worried About the Snapchat Stock Plunge?

Social media stocks lost US$180 billion in value on Tuesday, as shares of Snapchat (NYSE:SNAP) stock dropped by 41%, below…

Read more »