It might be tempting to chase the hottest tech stocks in the market. But sometimes, the best opportunities are hiding in plain sight. Many overlooked tech stocks right now have strong fundamentals and growth prospects, yet receive very little appreciation from the Street. I believe this is an opportunity to snap up some shares of these businesses before the tunnel vision on artificial intelligence (AI) ends and big-money investors start looking elsewhere for better value.
We are currently amidst a major change in monetary policy after ripples in the banking sector finally forced the Federal Reserve to loosen its monetary policy. For starters, mortgage rates are already falling, and cooling inflation will likely cause the Fed to pause hikes soon. The stock market also seems to be continuing on a long-term uptrend.
All things considered, I believe this U-turn in the economy will positively impact the following three overlooked tech stocks:
Xiaomi (XIACY)
Xiaomi (OTCMKTS:XIACY) is among the biggest Chinese smartphone makers. However, it is hitting a growth wall with the smartphone business slowing and is now expanding into other consumer electronics.
Xiaomi was hit hard by the selloffs in 2022, as the global chip shortage, regulatory uncertainties, and geopolitical tensions weighed on its performance. As a result, the stock is down more than 64% from its peak in December of 2020.
That’s just the tip of the iceberg: Xiaomi’s Q4 revenue fell 23% year-over-year to 66 billion RMB. This metric was 85.6 billion last year. Furthermore, the company made profits of 3.1 billion RMB this year – a disappointing number to investors, considering the company made 8.8 billion RMB for the same period in 2020.
Despite both the company’s top and bottom lines underperforming, I believe this selloff is overdone, and now is a great opportunity to buy Xiaomi at a bargain price. Why?
Xiaomi is diversifying away from its smartphone-dominated business and expanding its brand name into a broader spectrum of consumer electronic products. Non-smartphone segments are rising, with the “Internet services” segment continuing to grow. This segment has a high gross margin of 71.8%, compared to 9% for the smartphone segment. Therefore, I see this sector driving more profits in the future.
In addition, Xiaomi is investing in the future by entering the electric vehicle (EV) market, which could be a huge growth driver for the company in the long term. The company announced its EV project in March 2022 and plans to invest $10 billion over the next decade, with it’s first model set to launch in 2024.
With all these projects in the pipeline for the next few years, I’m more than upbeat on XIACY stock.
Fiverr International (FVRR)
Fiverr International (NYSE:FVRR) is among the most overlooked tech stocks in the market right now, down almost 90% from its peak. That’s because revenue has essentially stalled with just a 4.2% year-over-year increase in Q4. Sure, that’s better than a lot of other stocks, but it’s not nearly enough to classify Fiverr as a growth business, and investors have punished it by wiping out the premium it enjoyed in 2021.
However, this slowdown is temporary, and FVRR is poised to deliver huge gains when the macroeconomic environment shifts. After all, it is a freelance platform hit hard by companies and individuals cutting professional service costs. Long-term tailwinds will carry the gig economy upwards as discretionary spending rebounds.
Meanwhile, Fiverr is capitalizing on the opportunity by increasing its market share through aggressive marketing. Fiverr has a low churn rate, and I believe the customer cohorts the company is building up will be massively profitable in the long run.
Analysts also believe sales growth will reaccelerate to 18.8% in 2024. That’s plenty of growth to kickstart a major rally within the next few quarters.
Cognex (CGNX)
While AI stocks have been on quite the run this year, one AI business that went overlooked is Cognex (NASDAQ:CGNX). The company manufactures “machine vision systems, software and sensors used in automated manufacturing to inspect and identify parts, detect defects, verify product assembly, and guide assembly robots.”
While AI is having a massive impact on high-skill, white-collar jobs, it is yet to make a big difference for blue-collar workers. Indeed, it is a little ironic as it was widely believed that AI would first replace blue-collar workers even just a decade back.
But whatever may be the case, it is only a matter of time until much of the manufacturing work is automated. The environment is just right for that to happen as the U.S. and many of its allies are looking to diversify away from the world’s current manufacturing hub. The only barrier right now is a need for more blue-collar workers, which will inevitably lead to higher investments in manufacturing robots. Cognex will be among the top beneficiaries when that happens.
The company has best-in-class margins. Its gross margin sits at 71.8%, and its net margin is at 21.4%. Both metrics are ranked 97% and 94% better than peer companies. It also has very little debt and should easily weather any unexpected turmoil in the economy.
Sure, supply constraints are causing a lot of pain for CGNX in the near term. But I see a lot of upside potential here.
On the date of publication, Omor Ibne Ehsan did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.