The S&P 500 has soared 67% from the bottom of 2022's bear market. Those gains have pushed the valuations for many stocks to inflated levels, but there are still some good deals to be found, even in the tech sector.
Buying growing companies that are benefiting from tailwinds in their respective markets can lead to substantial gains, especially if you buy them at a reasonable price. Here are two stocks trading at attractive valuations relative to their growth prospects.
1. Dell Technologies
Shares of Dell Technologies(NYSE: DELL) have surged over the last few years. About half of its business still hinges on PC sales, but the stock's gains have been fueled by insatiable demand for servers, where Dell has been a leader in recent years. However, a recent pullback has brought the valuation down to an attractive entry point for new investors.
Demand for servers optimized for artificial intelligence (AI) is surging. Dell's infrastructure solutions group posted a revenue increase of 38% year over year in fiscal Q2 (ended Aug. 2). Looking deeper into this segment, server and networking revenue jumped 80% over the year-ago quarter, indicating a huge growth opportunity.
The growth in infrastructure solutions, including sales of AI servers, is fueling strong margin gains too. Dell's earnings per share jumped 86% year over year in fiscal Q2, and management expects margins from its infrastructure solutions segment to continue improving in the near term.
Dell believes it can grow earnings at a compound annual rate of 10% or more through fiscal 2028. Investors can buy the stock at a forward price-to-earnings (P/E) ratio of just 17, which is a discount to the S&P 500 average of 22. That's a steal for a key supplier of AI infrastructure. It's possible the company may outperform its growth estimates as the global market for AI servers is expected to increase 10-fold over the next decade, according to Statista.
2. Logitech International
Shares of Logitech International(NASDAQ: LOGI) rebounded along with the broad market in 2022, but the stock has cooled off this year, down 12% year to date. This dip gives investors a great opportunity to buy into the computer peripherals company.
Sales were up 6% year over year in the fiscal 2025 second quarter (ended Sept. 30), reversing the year-ago quarter's 8% decline. Logitech noted market share gains in pointing devices, keyboards, gaming wired mice, and headsets for console gaming and PC.
These products have always been Logitech's bread and butter, but it is starting to penetrate deeper into the enterprise space, which is a massive growth opportunity. Less than 20% of global conference rooms are equipped with video, and management sees the potential to sell peripheral products in retail, healthcare, and education.
Logitech's recent sales increase follows an improving PC market. Looking to 2025, the PC market is expected to have a strong year thanks to a number of AI-enabled devices hitting the market, which could lift sales for Logitech.
Analysts expect the company's earnings to grow 8% annually over the next five years, which makes the stock's forward P/E of 18 look fair. However, Logitech can outperform those estimates if it's successful expanding into the enterprise arena and capitalizing on growing demand for AI-enabled PCs.
Gartner projects AI PCs to comprise 43% of PC shipments in 2025, up from 17% in 2024. New PC sales should lead to higher sales of computer peripherals, allowing Logitech to deliver better-than-expected earnings results over the next few years.
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John Ballard has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Logitech International. The Motley Fool recommends Gartner. The Motley Fool has a disclosure policy.
