Thanks to strong tailwinds, these stocks can deliver incredible returns.
of S&P500 It has soared 67% since the bottom of the 2022 bear market. While these gains have pushed up the valuations of many stocks, there are still some stocks that are in good shape, even in the tech sector.
Acquiring growing companies benefiting from tailwinds in their respective markets can lead to significant returns, especially if acquired at a reasonable price. Here are two stocks trading at attractive valuations relative to their growth prospects.
1. Dell Technologies
shares of Dell Technologies (Dell -2.64%) It has increased rapidly in the last few years. About half of the company's business still relies on PC sales, but insatiable demand for servers, in which Dell has maintained its leadership position in recent years, is driving the stock price higher. However, the recent decline has brought valuations down to an attractive entry point for new investors.
Demand for artificial intelligence (AI)-optimized servers is skyrocketing. Dell's Infrastructure Solutions Group posted a 38% year-over-year revenue increase in its fiscal second quarter (ending August 2). A closer look at this segment reveals significant growth opportunities, with server and networking revenue up 80% year-over-year.
Growth in infrastructure solutions, including sales of AI servers, is also fueling significant profit growth. Dell's second-year earnings per share increased 86% year-over-year, and management expects the Infrastructure Solutions segment's margins to continue to improve in the near term.
Dell believes it can grow earnings by more than 10% per year on average through fiscal 2028. Investors can buy the stock at a forward price-earnings ratio (P/E) of just 17 times, which is cheaper than the S&P. The average of 500 is 22. This is an impressive number for a major supplier of AI infrastructure. According to Statista, the global market for AI servers is expected to grow 10 times over the next 10 years, potentially outpacing the company's growth projections.
2. Logitech International
shares of logitech international (Logi -2.11%) After rebounding along with the broader market in 2022, stocks have cooled this year, declining 12% since the start of the year. This decline is giving investors a great opportunity to buy into computer peripherals companies.
Sales in the second quarter of fiscal 2025 (ending September 30) increased by 6% year-on-year, reversing the 8% decline in the same period last year. Logitech noted market share growth for pointing devices, keyboards, wired gaming mice, and headsets for console gaming and PCs.
These products have always been Logitech's flagship products, but they are starting to penetrate deeper into the enterprise space, which is a huge growth opportunity. Less than 20% of the world's meeting rooms have video, and executives see the potential to sell peripheral products in the retail, healthcare, and education sectors.
Logitech's recent sales increase comes as the PC market improves. Looking ahead to 2025, the PC market is expected to be a strong year as a large number of AI-enabled devices will hit the market, which could boost Logitech's sales.
Analysts expect the company's earnings to grow 8% annually over the next five years, which would make the stock's forward P/E ratio of 18x seem reasonable. However, if Logitech can successfully expand into the enterprise space and capitalize on the growing demand for AI-enabled PCs, it could outperform these expectations.
gartner AI PCs are expected to account for 43% of PC shipments in 2025, up from 17% in 2024. Sales of new PCs will lead to increased sales of computer peripherals, which should help Logitech achieve better-than-expected earnings in the coming years.
John Ballard has no position in any stocks mentioned. The Motley Fool has a position in and recommends Logitech International. The Motley Fool recommends Gartner. The Motley Fool has a disclosure policy.
