Technology stocks have dominated the market in 2020, with many companies in the space benefiting as business shifted to digital channels due to the coronavirus pandemic. For comparison, the Vanguard Information Technology ETF has climbed roughly 44.5% year to date, while the S&P 500 index level has risen approximately 15% across the same stretch. The tech sector’s market-driving power looks even more impressive if you consider that technology companies played the biggest role in powering the diversified S&P 500 index’s gains this year.
Stellar performance for the sector at large has made it more difficult to find great deals on tech stocks, but it’s still possible to get great deals on companies that are primed to deliver market-crushing gains. Read on for a look at three cheap tech stocks that could deliver strong returns and are worth adding to your portfolio today.
1. Lumen Technologies
CenturyLink changed its name to Lumen Technologies (NYSE:LUMN) earlier this year as part of a broader effort to refocus its business, but the stock remains largely overlooked and offers attractive characteristics for investors seeking big dividends and strong value cases. The company’s stock yields roughly 9.8% at current prices and is valued at less than seven times this year’s expected earnings.
The market’s lukewarm read on the telecommunications services provider is easy enough to understand. The company opted to slash its dividend last year due to declining revenue and the need to pay down its debt, and substantial payout cuts have a tendency to linger in the market’s psyche. However, Lumen Technologies is generating more than enough free cash flow to cover its current dividend, fund growth bets, and continue to reduce its debt load, and there are signs that the stock is significantly undervalued.
Lumen is pivoting its core business from copper-based broadband services to high-performance fiber lines, which have a stronger demand outlook in the age of next-gen internet technologies and should generate better margins. The company is also leveraging its position in enterprise internet services to explore growth opportunities in edge computing, cybersecurity, and collaboration software. Lumen offers a dividend yield that’s tough to beat, and the cheaply valued stock could deliver big gains if the business’ turnaround effort continues to make progress.
2. Glu Mobile
Video game companies have enjoyed strong performance in 2020, with many existing growth trends being supercharged by social-distancing conditions that stemmed from the coronavirus pandemic. Glu Mobile‘s (NASDAQ:GLUU) shares have surged 59% year to date, but the stock still looks cheaply valued, trading at roughly 24 times this year’s expected earnings.
The mobile-focused video game publisher has a market capitalization of roughly $1.6 billion, which makes it the last publicly traded Western gaming company to still trade in small-cap territory. Glu’s relatively small size means that it doesn’t have the development and marketing resources of larger players such as Activision Blizzard or Tencent Holdings, but the company’s comparatively tiny stature may also prove advantageous for risk-tolerant investors. Business successes that might barely register for the giants of the industry have the potential to power big stock gains for Glu, and it looks like the company is on track to deliver next year and beyond.
Glu Mobile is expecting a big release year in 2021. The company is set to release a new game from CrowdStar, its most successful studio, and it also has at least two other games set to release before next year is over. The company’s core franchises, which include Covet Fashion, Design Home, and MLB Tap Sports Baseball, are also still putting up strong performance and should continue to enjoy strong engagement thanks to continued content updates. Glu is even making the innovative move of integrating real-world e-commerce stores into some of its games.
The gaming industry looks poised for huge growth over the long term, and Glu has plenty of avenues for tapping into that momentum and delivering strong returns for shareholders. Don’t count on the company remaining in small-cap territory for long.
It’s been an up-and-down year for Baozun (NASDAQ:BZUN) stock. The Chinese e-commerce services provider’s share price is up roughly 8% year to date, but it trades down roughly 25% from its 52-week high and 46% from the lifetime high it hit in the summer of 2018. Baozun has never been a low-risk stock, but it offers huge upside potential and shares look attractively valued.
The company’s core business revolves around providing services that make it easy for large Western brands to launch and scale e-commerce operations in the Chinese market. It provides website creation tools, customer management, advertising and marketing, and warehousing and order-fulfillment services. Baozun’s platform is also integrated with China’s major e-commerce hubs, including Alibaba‘s Tmall, JD.com, Tencent’s WeChat, and ByteDance’s Douyin (the Chinese version of TikTok).
The company has a leading position in its corner of the e-commerce market, but it’s fair to say that the business has given investors reason to be cautious over the last couple of years. Despite shifting some focus away from warehousing and order fulfillment services in favor of prioritizing its web platform, margins have grown at slower than expected rates — and actually contracted in some quarters.
More recently, Baozun completed a substantial offering of new shares in October and then followed it up with a third-quarter report that featured slower than expected sales growth. Factor in geopolitical concerns related to tensions between the U.S. and China, and rumblings that Chinese stocks could be delisted from U.S. exchanges, and it’s not hard to see why stock performance has been mediocre.
However, it looks like margins are starting to climb again, and the business still has a long runway for expansion. Building an e-commerce business in China is often difficult for Western brands, and Baozun provides localized solutions for tapping into the country’s world-leading and fast-growing online retail market. Shares are trading at roughly 28 times this year’s expected earnings, which looks like an attractive multiple for a company that has such intriguing growth potential.