Daniel Ives Says Tech Sector Will Rise ~20% In 2023 — Here Are 2 Stocks To Play On That Optimistic Sentiment

0
11

It’s no secret that the tech sector took a beating in the bearish market last year. In fact, the tech-heavy NASDAQ index lost more than 33% in 2022, leading the market downturn. But savvy investors have long bet that what goes down must come back up.

Daniel Ives, Wedbush’s well-known tech bull, sees reasons for hope in the tech sector in 2023. In fact, he sees the sector experiencing a significant upswing, and, at least in part, credits the current downturn for setting up that opportunity In this carnage, we see growth opportunities as we believe the tech sector in general will rise about 20% in 2023 from current levels, with Big Tech, software and semi-corporates taking the lead despite the Macro/Fed wild cards.”

The 5-star analyst has done more than make a bullish call on the technical market in general; he also recommended Buy positions on several technology stocks, particularly in the cloud and software segments, which are well suited to benefiting from a turnaround. We’ve used the TipRanks platform to pull up the details of two of his picks – it also turns out that both are Strong Buys by analyst consensus. Let’s dive in.

Get Out, Inc. (ALIT)

We start with Alight, a business process outsourcing software company. Alight has followed the popular as-a-service model in creating and commercializing its software products, creating a BPaaS offering that gives subscription customers access to cloud-based solutions for business process management and analytics, as well as human capital. Alight’s cloud software uses AI technology to automate processes, manage risk, and predict needs and opportunities.

In recent months, Alight has seen some developments that should be of interest to investors. First, the company announced a secondary public offering of shares in November — selling 23 million shares for $7.75 each. The offering raised gross proceeds of $178.25 million.

ALSO READ  Markets To Fed: We're Easing Whether You Like It Or Not

In the second development, in December, the company announced the global expansion of Alight Worklife, its proprietary employee experience platform, by adding a payroll solution to the product. The expansion combines payroll and HR into one automated platform solution.

On the financial side, Alight’s financial results for 3Q22, its last reported quarter, showed year-over-year revenue increases. On the top line, the company showed $750 million, up 8.7% from 3Q21, while the bottom line showed 12 cents per adjusted diluted share. This EPS number was down 33% year over year.

In a statistic that bodes well for the company, Alight reported BPaaS bookings of $564 million for the first three quarters of calendar year 2022. This was more than 80% of the company’s target for bookings for the full year, which is amounts to $680 million. up to $700 million.

Looking ahead, Alight is leading to full year 2022 revenue of between $3.09 billion and $3.12 billion, which will represent annualized growth of between 6% and 7%.

The drop in earnings hasn’t stopped Daniel Ives from moving firmly on the bullish side for this stock. He writes, “With over 70% of the Fortune 100 and 50% of the Fortune 500 being Alight customers, we believe there is still plenty of room to capture more logo profits and continue to cross-sell from its diversified product portfolio to its large existing customer base… The company has a significant opportunity to convert its large existing customer base into higher value BPaaS deals that will help drive margins over time.”

To quantify this bullish stance, Ives gives an Outperform (i.e. Buy) rating to Alight stock, and his $13 price target suggests they have room for 49% growth in 2023. (To view Ives’ track record, click here)

ALSO READ  Stock Faithful Try to look past the bond market's gloomy signals

While this stock has only received 3 recent analyst ratings, they all agree it’s a buy, making Strong Buy’s consensus rating unanimous. The shares are priced at $8.73, and their $12.50 average price target is almost as bullish as Ives allows, implying a one-year gain of ~43%. (See Alight Stock Forecast on TipRanks)

Zscaler, Inc. (ZS)

Ives’ second pick that we’re looking at is Zscaler, a network security technology company. The company provides customers with access to “the world’s largest security cloud,” the Zero Trust Exchange. Zscaler’s platform enables customers to securely connect apps, devices and users on any network – and by ensuring network security, improves trust, simplifies business and online navigation for improved productivity. ZScaler’s Zero Trust Exchange works at different levels, including app-to-app, app-to-user, and machine-to-machine.

While shares of Zscaler have fallen (the stock lost 67% in 2022), the company has been reporting consistent gains on the upside and downside over the past few years. In its last reported quarter, Q1 of FY2023 — the quarter ended Oct. 31 — Zscaler had total revenue of $355.5 million, up 54% year-over-year. In the end, non-GAAP EPS more than doubled year over year, from 14 cents in fiscal 1Q22 to 29 cents in fiscal 1Q23.

In addition to solid earnings and earnings, Zscaler also performed on cash flow metrics. The company reported cash from operations of $128.5 million and free cash flow of $95.6 million. These figures rose by 37% and 14% year-on-year, respectively. The company had $1.824 billion in cash and liquid assets available as of October 31, 2022.

ALSO READ  Here's a better choice than CSX stock

Finally, Zscaler also reported $1.005 billion in deferred revenue at the end of its fiscal first quarter. This was a 55% year-over-year increase and points to a solid backlog for the company going forward.

In terms of Wedbush’s view, Ives paints an optimistic picture of Zscaler’s position and course forward, saying of the company, “While macroeconomic factors create clear uncertainty leading companies to be more cautious about strategic moves, ZS is taking advantage of current market opportunities adopting and innovating with customers to build its pipeline, ultimately easing macroeconomic pressures and lengthening sales cycles… With the rest of the tech industry battered by significant macroeconomic pressures, ZS has remained resilient in its market and product strategy and grew with continued success for its zero-trust SaaS applications and cloud workload protection.”

Getting to the nitty-gritty, Ives gives ZS stock an Outperform (i.e. Buy) with a $180 price target to indicate confidence in a 73% gain on the one-year horizon.

Overall, Zscaler has attracted a lot of attention from the street and boasts 29 recent analyst ratings. These split 22 to 7 in favor of Buys over Holds, supporting the Strong Buy consensus rating. The average price target here is $178.75, practically the same as Ives’ target. (See Zscaler Stock Forecast on TipRanks)

To find great ideas for stocks trading at attractive valuations, visit TipRanks’ Best Stocks to Buy, a recently launched tool that unites all of TipRanks’ stock insights.

Disclaimer: The opinions expressed in this article are solely those of the recommended analysts. The content is for informational purposes only. It is very important to do your own analysis before making an investment.