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3 Tech Stocks to Hedge Inflation

Despite significant turbulence, the technology sector’s prospects remain positive due to fast digital transformation and increasing internet adoption. So, investors looking for a solid tech stock should pick TDK (TTDKY), Seiko Epson (SEKEY), and Daktronics (DAKT). Read on...

Robust demand across industries is helping the tech sector to remain afloat despite the macroeconomic woes. So, investors looking for inflation hedges can consider tech stocks can consider buying TDK Corporation (TTDKY), Seiko Epson Corporation (SEKEY), and  Daktronics, Inc. (DAKT).

According to Gartner’s latest prediction, global IT investment will reach $4.6 trillion in 2023, a 5.5% rise from last year.

Digital transformation is the incorporation of modern digital technology into corporate processes to provide value to customers while driving global market growth. Enterprises are turning away from old business models and toward technologically enhanced alternatives. The global digital transformation market is projected to grow at a CAGR of 21.6% until 2030.

Investors’ interest in tech stocks is evident from the Technology Select Sector SPDR ETF (XLK) 21.7% returns over the past six months.

Let’s delve deeper into the fundamentals of the stocks.

TDK Corporation (TTDKY)

Headquartered in Tokyo, Japan, TTDKY, together with its subsidiaries, engages in manufacture and sale of electronic components in Japan, Europe, China, Asia, the Americas, and internationally.

On April 17, 2023, TTDKY announced the investment of its subsidiary TDK Ventures Inc. in the lithium-extraction firm Novalith. Novalith’s technology solutions absorb and harness atmospheric carbon dioxide (CO2) to isolate and extract higher quality - battery grade - lithium from resource sources with no negative by-products.

TTDKY’s forward EV/Sales multiple of 0.98 is 62.4% lower than the industry average of 2.61. Its forward EV/EBITDA multiple of 4.96 is 62.8% lower than the industry average of 13.34.

TTDKY’s trailing-12-month ROTA of 3.63% is 463.5% higher than the industry average of 0.64%. Its trailing-12-month ROCE of 8.14% is 634.1% higher than the industry average of 1.11%.

For the final year that ended March 31, 2023, TTDKY’s net sales came in at ¥2.18 trillion ($16.17 billion), up 14.7% year-over-year. Its gross profit came in at ¥584.52 billion ($4.34 million), up 3.7% year-over-year. Its operating profit increased marginally year-over-year to ¥168.83 billion ($1.25 million).

Analysts expect TTDKY’s revenue to increase 324.4% year-over-year to $15.73 billion in 2024. It’s EPS is expected to grow 15% to $3.03 in 2024. TTDKY’s shares have gained 15.2% over the past year to close the last trading session at $35.94.

TTDKY’s POWR Ratings reflect this promising outlook. The stock has an overall rating of B, equating to a Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.

TTDKY has a B grade for Stability, Value and Momentum. Within the Technology - Hardware industry, it is ranked #10 out of 41 stocks. Click here for the additional POWR Ratings for Sentiment, Growth, and Quality for TTDKY.

Seiko Epson Corporation (SEKEY)

SEKEY, headquartered in Suwa, Japan, develops, manufactures, and sells services for products in printing solutions, visual communications, and other businesses. The company operates through three broad segments, Printing Solutions; Visual Communications; and Manufacturing-related and Wearables segments.

On April 12, 2023, SEKEY and Loftware, the world’s leading cloud-based Enterprise Labeling and Artwork Management service and the global leader in color label printers, announced today a strategic agreement to improve customers’ labeling workflows.

SEKEY’s forward EV/Sales multiple of 0.49 is 81.4% lower than the industry average of 2.61. Its forward Price/Sales multiple of 0.51 is 79.6% lower than the industry average of 2.52.

SEKEY’s trailing-12-month ROTA and ROCE of 5.59% and 10.77% are 768.7% and 871.5% higher than the industry averages of 0.64% and 1.11%, respectively.

SEKEY’s revenue came in at ¥1.33 trillion ($9.87 billion) for the final year that ended March 30, 2023, up 17.8% year-over-year. Its gross profit increased 11.5% year-over-year to ¥466.65 billion ($3.46 million).

Also, its current assets came in at ¥892.51 billion ($6.62 million) for the period that ended March 31, 2022, compared to ¥834.47 billion ($6.19 million) for the period that ended March 31, 2023.

Street expects SEKEY’s revenue to increase 39% year-over-year to $9.89 billion in 2024. Over the past three months, the stock has gained 11.5% to close the last trading session at $7.74.

It’s no surprise that SEKEY has an overall B rating, equating to a Buy in our POWR Ratings system. It has a B for Stability, Value and Quality. It is ranked #6 in the same industry.

Beyond what is stated above, we’ve also rated SEKEY for Growth, Sentiment, and Momentum. Get all SEKEY ratings here.

Daktronics, Inc. (DAKT)

DAKT designs, manufactures, markets, and sells electronic display systems and related products worldwide. It operates through five segments: Commercial, Live Events, High School Park and Recreation, Transportation, and International.

DAKT’s trailing-12-month EV/Sales multiple of 0.36 is 87.1% lower than the industry average of 2.74. Its trailing-12-month Price/Sales multiple of 0.33 is 87.3% lower than the industry average of 2.57.

DAKT’s trailing-12-month ROTC of 2.29x is 10.1% higher than the 2.08x industry average. Its trailing-12-month asset turnover ratio of 1.63x is 163.7% higher than the 0.62x industry average.

DAKT’s net sales came in at $184.98 million for the fiscal third quarter that ended January 31, 2023, up 32.5% year-over-year. Its gross profit increased 87% year-over-year to $41.71 million.

Also, its net income came in at $3.71 million, compared to net loss of $4.35 million in the previous-year quarter. Its income per share came in at $0.08, compared to loss per share of $0.10 in the previous-year quarter.

Over the past year the stock has gained 55.7% to close its last trading session at $5.09.

DAKT’s POWR Ratings reflect its solid prospects. The stock has an overall B rating, translating to Buy in our proprietary rating system.

It also has a B grade for Growth and Value. It is ranked #8 within the same industry. Click here to see the additional ratings for DAKT (Momentum, Sentiment, Stability, and Quality).

What To Do Next?

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TTDKY shares were trading at $35.99 per share on Tuesday afternoon, up $0.04 (+0.12%). Year-to-date, TTDKY has gained 10.60%, versus a 7.92% rise in the benchmark S&P 500 index during the same period.

About the Author: Rashmi Kumari

Rashmi is passionate about capital markets, wealth management, and financial regulatory issues, which led her to pursue a career as an investment analyst. With a master's degree in commerce, she aspires to make complex financial matters understandable for individual investors and help them make appropriate investment decisions.


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