August 31, 2022, NetApp, Inc. (NASDAQ:NTAP) and ServiceNow, Inc. (NYSE:NOW)
These important tech names are the best stocks to buy now after unreasonably falling after solid earnings.
You can say whatever you want about tech at the moment. It’s oversaturated, hates rising rates and inflation, and hates the current state of the market. Tuesday (August 30, 2022) marked the market’s third down day in a row, and the Nasdaq has been the biggest underperformer. However, despite the underperformance of essential tech companies like NetApp, Inc. (NASDAQ:NTAP) and ServiceNow, Inc. (NYSE:NOW), they sit in unique positions as potentially the best stocks to buy now.
NetApp is a data-center storage specialist with other cloud-based solutions, enterprise applications, DevOps, and AI. ServiceNow provides critical cloud computing solutions for worldwide companies to streamline and automate their operations. Both operate in critical areas that can help companies cut costs while improving efficiency.
Both also unreasonably sold off following solid earnings.
While NetApp offers more than ServiceNow from the fundamental side, ServiceNow’s net income could surge 500+% according to Finbox.
But the common ground between both stocks is that they have considerable analyst upside. 5 analysts have boosted NetApp’s price target since its earnings, indicating an upside between 24.50% and 45.25%. A recent Credit Suisse price target sees a 48.80% upside in ServiceNow.
The bottom line is that these stocks are high risk and high reward at this time. But you can’t ignore the earnings and upside catalysts. Their potential to continue innovating throughout a shaky economic situation positions them as the best stocks to buy now, no matter how you feel about the market.
NetApp, Inc. (NASDAQ:NTAP)
This beaten-down tech player received 5 analyst upgrades since its latest earnings and could move as much as 45.25%
NetApp is a prominent player in the technology hardware, storage & peripherals industry. At its core, NetApp is a data-center storage specialist. However, over the years, it has evolved into a diversified conglomerate with various enterprise-level products and services. Besides data storage, protection, and management, NetApp’s services include cloud-based solutions, enterprise applications, DevOps, and AI.
In this inflationary environment where companies are looking to cut costs and improve efficiencies, the opportunity to snag NetApp at a discount is tantalizing.
Yes, earnings and revenue growth have slowed. Yes, rates are rising, and conditions for tech stocks are uncertain. Yet NetApp still beat analyst estimates last quarter and upped its guidance. Growth projections from here look strong, too.
Furthermore, the Company just approved a new $0.50 dividend, and its fundamentals appear outstanding.
You can’t ignore the potential 45.25% analyst upside either. Especially with the stock still profoundly in a bear market, but rallying 17.99% since July 5, 2022’s lows.
Earnings and Revenue Growth Have Slowed On the Surface- Yet NTAP Keeps Exceeding Expectations
Following broader market uncertainty, investors are still trying to figure out what to make of NetApp’s earnings.
On the one hand, the stock surged by roughly 8% following its Q2 earnings report on August 24, 2022. EPS came in at $1.20, topping analyst estimates of $1.10 and marking a 4.35% year-over-year increase. Revenue also came in at $1.59 billion, compared to the consensus estimate of $1.55 billion, marking a 9.2% year-over-year increase.
Moreover, NetApp increased its quarterly EPS guidance to $1.28-1.38 per and full-year guidance to $5.40-$5.60.
On the other hand, since its earnings report, the stock has given up virtually all of its gains following the Fed-induced sell-offs. Investors may also be concerned that earnings and revenue growth have slowed relatively since peaking in 2021.
Investors should wake up and realize that the sell-off is overblown. It’s nothing more than an opportunity to snag one of the best stocks to buy now at a cheaper level. It’s a buying opportunity anytime a stock unreasonably sells off after announcing strong earnings.
Considering that earnings for NetApp could grow 13.00% in the coming year and net income could increase 30.7%, and by an average of 18.7% over the next five fiscal years, we’re not the only ones calling the post-earnings decline overblown.
Compared to Many Other Tech Stocks, NetApp Offers Outstanding Fundamentals, Value, and Dividends
For more speculative reasons, many tech stocks are considered the best ones to buy now. NetApp, on the other hand, offers several fundamentally sound and robust value qualities.
For one, it remains -25+% below its 2022 highs. Its 17.0x trailing P/E and 13.4x forward P/E are also incredibly cheap for a tech stock. Its valuation also implies a solid 6.3% free cash flow yield.
Fundamentally, its 7 out of 9 Piotroski Score indicates healthy Liquid Balance Sheets, Profitability, and Operating Efficiency. Its 137.80% ROCE also illustrates a Company efficiently making the most of its common equity and generating a mind-blowing return.
Yet beyond a strong ROCE, NetApp’s other fundamental margins indicate that this machine is well-run.
However, the fundamental selling point for NetApp as one of the best stocks to buy now is its 9.2% shareholder yield and 2.72% dividend yield.
Especially considering many other cloud or data storage companies don’t even pay dividends.
Source: Finbox
The dividend also has a 3-year annualized growth rate of 12.25% and could continue surging at a 21.4% 5-year CAGR. Certainly, NetApp is off to a good start on this growth trajectory, considering its board recently approved a quarterly dividend of $0.50 per share.
Insiders and short sellers may also see NetApp as one of the best stocks to buy now. Management has been aggressively buying back shares, while short interest in NetApp recently decreased by 4.25%.
Recent Analyst Upgrades See the Stock Moving Anywhere Between 24.50% and 45.25% According to Tipranks, 16 Wall Street analysts offered 12-month price targets for NTAP in the last 3 months. It currently has a high price target of $120.00, a low of $68.00, and an average of $88.88. Its average price target represents a 22.97% upside from August 30, 2022’s $72.28 close.
Many analysts, however, have upgraded their price targets following NetApp’s impressive earnings report. Since August 25, 2022, 5 analysts have boosted their price targets, with JPMorgan’s $90.00 price target, Barclays’ $95.00 price target, and Raymond James’ $105.00 price target, all representing an upside between 24.50% and 45.25%.
NTAP’s year-to-date low and high are $61.26 and $96.82, respectively.
ServiceNow, Inc. (NYSE:NOW)
Don’t overlook 500+% net income growth potential and Credit Suisse’s latest price target showing a 48.80% upside for this software player.
Depending on your investment philosophy, you may or may not consider ServiceNow one of the best stocks to buy now.
On the one hand, the stock is pricey, its margins are tight, and it trades with high earnings multiples.
On the other hand, it’s a long-term outperformer, trading more than a third below its all-time highs.
Most importantly, it unreasonably sold off despite reporting solid earnings. Net income could notably surge 500+% in the next 12 months, according to Finbox data.
But, no matter which way you stand on the investment philosophy pendulum, NOW’s undeniably positioned in the software industry with critical cloud computing solutions that aid global enterprises in streamlining and automating their operations.
There are risks, but the upside potential for ServiceNow, including the 48.80% upside that Credit Suisse sees, makes it one of the best stocks to buy now.
Revenue is Popping Year-Over-Year, Earnings Could Grow Another 54+%, and Net Income Could Skyrocket 500+%
CNBC personality Jim Cramer singled out ServiceNow as a tech stock that delivered solid quarterly numbers yet still got crushed. In his words, when something like that happens, for investors, it’s “soul searching time.”
ServiceNow last posted its quarterly earnings results on July 27, 2022. EPS came in at $0.20, topping consensus estimates of $0.12. Revenue also came in at $1.75 billion, primarily aligned with analyst expectations and marking a 24.3% year-over-year increase.
It also sits with an impressive 77.5% gross margin.
What is eye-catching for ServiceNow is its growth potential following this earnings report. Although NOW’s EPS is sharply down from last year’s, it’s one of the best stocks to buy now because ServiceNow’s earnings could return to their peak and grow by 54.07% in the coming year. Projections also see revenue increasing at a 33.5% 5-year CAGR.
But this doesn’t tell the whole story. Finbox forecasts ServiceNow’s net income to explode by 544.6% in the next 12 months and average 131.7% growth over the next five fiscal years.
Although the Company has tighter margins than ideal and trades with several overvalued multiples, these projections don’t sound like a struggling company. Sometimes you have to overpay when the growth potential looks this explosive.
Down But Not Out- A STRONG BUY With a Potential 48.80% Upside
Based on the potential analyst upside for ServiceNow, we’re not the only ones who see it as one of the best stocks to buy now.
Tipranks considers ServiceNow a STRONG BUY because 24 out of 26 notes Wall Street analysts who offered 12-month price targets for NOW in the last 3 months rated it a BUY. Currently, ServiceNow has a street-high price target of $650.00, a low of $495.00, and an average of $547.68. The average price target represents a 25.37% upside from its August 30, 2022, closing price of $436.84.
On July 28, 2022, Credit Suisse gave ServiceNow a street-high $650.00 price target. The potential 48.80% upside they see dwarfs the average.
Other analysts, since late July, have given the stock similarly high price targets well above the average, such as:
- Sanford C. Bernstein- $646.00
- Royal Bank of Canada- $610.00
- Cowen- $580.00
- Morgan Stanley, Citigroup- $575.00
- JMP Securities- $553.00
- Wells Fargo, Piper Sandler, Truist Financial- $550.00
NOW’s year-to-date low and high are $406.47 and $663.17, respectively.
