Verizon, Qualcomm, and UMC still look like value plays in this frothy market.
Warren Buffett once famously said, “Whether we’re talking about socks or stocks, I like buying quality merchandise when it is marked down.” But as the S&P 500 hovers near its record highs and looks historically expensive at 30 times earnings, it might be tough to spot the bargains.
It might seem even tougher to find “marked down” tech plays, since the Magnificent Seven and other top tech stocks fueled a lot of the market’s recent momentum. But if we dig just a bit deeper, we’ll uncover three cheap tech stocks that are still worth buying today: Verizon (VZ 0.40%), Qualcomm (QCOM 1.14%), and United Microelectronics (UMC 0.90%).
Image source: Getty Images.
1. Verizon
Verizon, one of America’s top telecom companies, is often considered a reliable long-term income investment. But over the past five years, its stock declined more than 25% as it struggled to gain new wireless and business wireline subscribers.
To offset that pressure, it’s aggressively expanding its broadband business with its fixed wireless access (FWA) and FiOS fiber networks. Its planned acquisition of Frontier Communications, which is expected to close in 2026, will accelerate that strategy by adding at least 2.2 million new fiber subscribers.
It also aims to leverage the strength of its broadband business to launch more wireless and entertainment bundles, which could stabilize its weaker wireless segment and increase the stickiness of its services. In addition, its new services, which integrate its 5G networks with a wider range of artificial intelligence (AI) services, could bring back more enterprise customers and reduce the importance of its business wireline division.
From 2024 to 2027, analysts expect Verizon’s revenue and adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) to grow at a compound annual growth rate (CAGR) of 2% and 3%, respectively. Its stock trades at just 6 times this year’s adjusted EBITDA, and its hefty forward dividend yield of 6.3% is supported by a low payout ratio of 63%. That stable growth, low valuation, and high yield should make it a great stock to buy and hold, even if the broader market swoons.
2. Qualcomm
Qualcomm is one of the world’s leading producers of system on chips (SoCs) — which bundle together a central processing unit (CPU), graphics processing unit (GPU), and modem — for smartphones, tablets, and other mobile devices. It also produces chips for connected cars and Internet of Things (IoT) devices. It generates most of its revenue from its SoCs, but most of its profits come from its licensing business, which leverages its wireless patents to earn royalties and licensing fees from every smartphone sold worldwide — even if they don’t use its chips.
Qualcomm’s sales growth usually mirrors the smartphone market’s boom and bust cycles. It suffered a severe slowdown in fiscal 2023 (which ended in September 2023) as the 5G upgrade cycle cooled. But in fiscal 2024, its revenue and adjusted earnings per share (EPS) increased 9% and 21%, respectively, as the smartphone market stabilized and it launched new chips for processing AI applications.
From fiscal 2024 to fiscal 2027, analysts expect Qualcomm’s revenue and EPS to both grow at a CAGR of 6%. That growth should be driven by its sales of newer chips for the auto, IoT, edge networking, and PC markets, and that diversification should reduce its dependence on smartphones and offset its eventual loss of Apple, which plans to replace Qualcomm’s 5G modems with its own chips within the next two years.
Qualcomm certainly isn’t a high-growth stock anymore, but it looks like a bargain at 12 times its forward adjusted earnings. Its forward yield of 2.4% is also buoyed by a low payout ratio of 33%.
3. UMC
United Microelectronics, more commonly known as UMC, is Taiwan’s second-largest contract chipmaker after Taiwan Semiconductor Manufacturing Company (TSM -0.33%), or TSMC. But unlike TSMC, which manufactures the world’s smallest, densest, and most power-efficient chips, UMC only produces larger, older, and cheaper chips for the lower-end and mid-range device markets.
UMC is growing at a slower rate than TSMC, but it’s still a linchpin of the semiconductor market. It will continue to scale up its production of chips for its mature nodes (28 nanometers to 90 nanometers), which are still widely used to manufacture analog, power integrated circuits (ICs), microcontrollers, display drivers, and IoT chips. The growth of the auto market could generate tailwinds for all those markets.
From 2024 to 2027, analysts expect UMC’s revenue and EPS to grow at a CAGR of 5% and 2%, respectively. Those growth rates might not seem too impressive, but the stock looks cheap at 14 times this year’s earnings. Its dividend fluctuates every year based on its earnings growth, but its high forward yield of 7.1% should limit its downside potential. That makes it an attractive value play on the secular expansion of the global semiconductor market.