The past year was no doubt one of the best years for tech stocks. This is apparent from the Technology Select Sector SPDR ETF’s (XLK) nearly 65% gain over this period. The tech sell-off triggered by rising treasury yields and sector rotation toward cyclical stocks have eased, as the Dow Jones and S&P 500 hit record highs recently. Tech stocks are making a massive comeback, as disappointing jobless claims data and concerns over a fourth wave of the pandemic have rejuvenated the interest in the pandemic beneficiaries.
The optimistic market recovery outlook has led investors to bet on small-cap stocks having the highest growth potential compared to mid-cap and large-cap stocks. This is reflected in the Russell 2000 Index’s more than 13% gain year-to-date, compared to S&P 500’s 9.1% return.
So, it is wise to bet on small-cap tech stocks such as CTS Corporation (CTS), Universal Electronics Inc. (UEIC), Aviat Networks, Inc. (AVNW), and Franklin Wireless Corp. (FKWL), as they have plenty of upside left.
CTS Corporation (CTS)
With a market cap of $1.01 billion, CTS operates as a manufacturer of sensors, electronic components and actuators. Its products include sensors and actuators used in passenger or commercial vehicles, electronic components, switches and potentiometers, and fabricated piezoelectric materials and substrates. The company provides its solutions mainly to the OEMs in the aerospace, communications, defence, industrial, information technology, medical, and transportation markets.
CTS’ net sales of $123.02 million for the fiscal 2020 fourth quarter that ended December 31, 2021 represents a 6.9% year-over-year rise. Its gross profit has increased 10.3% year-over-year to $42.69 million. The company’s net income has increased by 48.5% year-over-year to $14.95 million. Also, its adjusted EPS increased by 16.2% year-over-year to $0.43.
For the quarter that ended March 31, 2021 analysts expect CTS’ EPS and revenue to increase 105.3% year-over-year and 17.3% year-over-year, respectively. Moreover, it surpassed the consensus EPS estimates in each of the trailing four quarters, which is impressive.
On February 26, 2021, the company received a $1.50 million grant from the Office of Naval Research (ONR) to develop the next generation piezoelectric single crystal materials. CTS along with the strategic partner, Entekno Materials, Turkey, also secured funding from Eurostars in February for the development of ‘Environmentally Friendly Lead-Free Piezoelectric Ceramic Material’. Also, its Board of Directors declared a cash dividend of $0.04 per share payable on April 23, 2021. The stock has gained 39.4% over the past year to close yesterday’s trading session at $31.28.
It’s no surprise that CTS has an overall grade of A, which equates to Strong Buy in our POWR Ratings system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
The stock has an A grade for Quality, and a B grade for Sentiment, Growth, Momentum, and Stability. Click here to see CTS’ grades for Value as well.
CTS is ranked #2 out of 42 stocks in the B-rated Technology-Electronics industry.
Universal Electronics Inc. (UEIC)
UEIC designs, develops, manufactures, and sells universal and pre-programed control products that enable devices such as televisions, DVD players, digital video recorders, smart speakers and other consumer electronic devices to wirelessly connect and interact with home networks. Its broad portfolio of patents includes QuickSet software that utilizes the world’s most complete knowledge graph to detect and interact with thousands of entertainment and smart home devices. UEIC has a market cap of $777.29 million.
For the fiscal 2020 fourth quarter that ended December 31, 2020, UEIC’s net sales came in at $156.26 million, indicating marginal sequential growth. Its gross profit for the quarter increased 2.2% year-over-year to $51.10 million. The company’s net income also increased more than 74.28% year-over-year to $12.20 million. Its non-GAAP EPS increased 26.7% year-over-year to $1.14.
The company’s EPS is expected to increase 18% year-over-year to $1.05 for the quarter ending June 30, 2021. Also, UEIC surpassed the consensus EPS estimates in three of the trailing four quarters. Its revenue is expected to come in at $662.51 million in fiscal 2021, which represents a 7.7% year-over-year rise.
On March 25, 2021 UEIC entered into a development relationship with Instreamatic, the voice dialogue marketing platform powered by AI technology, to bring Instreamatic’s interactive voice-enabled advertising to home entertainment devices such as set-top boxes and smart TVs. The solution is expected to be available for service providers in June 2021. The company also introduced UEI Comfort family of connected thermostats on February 11, 2021. The stock has rallied 48.2% over the past year and closed yesterday’s trading session at $56.29.
UEIC’s POWR Ratings reflects this promising outlook. The stock has an overall grade of, which equates to Strong Buy rating in our POWR Ratings system. It has an A grade for Sentiment, and a B grade for Stability, Value, Momentum, and Quality. Apart from these, one can see UEIC’s grade for Growth here.
UEIC is ranked #1 in the Technology - Electronics industry.
Aviat Networks, Inc. (AVNW)
Microwave networking solutions provider AVNW has a market cap of $450.68 million. The company designs, manufactures, and sells wireless networking products, solutions and services for communications service providers and private network operators. Its product categories include point-to-point microwave and millimeter wave radios and it also provides a range of professional services enabling it to deliver turnkey networks, among others.
AVNW’s net sales of $70.53 million for fiscal 2021 second quarter that ended January 1, 2021 represents a 26% year-over year rise. Its gross profit has increased 46.9% year-over-year to $26.91 million. The company’s net income for the quarter came in at $6.64 million compared to a net loss of $1.67 million in the prior year period. Its EPS came in at $1.16 compared to a loss per share of $0.31 in the second quarter of fiscal 2020.
For the quarter that ended March 31, 2021 analysts expect AVNW’s EPS to increase by 89.5% year-over-year to $0.36. It surpassed the Street EPS estimates in each of the trailing four quarters. The company’s revenue is expected to increase 10.2% year-over-year to $262.91 million in fiscal 2021.
In late March, AVNW announced the availability of A2C+ (Adaptive Dual Carrier Plus), ground-breaking new software, on its WTM 4000 radio platform. A2C+ not only doubles the capacity of a microwave link without the need for additional equipment but also reduces both CAPEX and OPEX costs associated with network modernization. Also, on March 5, 2021, the company’s Board of Directors approved and declared a two-for-one stock split in the form of a stock dividend to make the stock more accessible to a broader base of investors. AVNW has gained 812.2% over the past year and closed yesterday’s trading session at $40.50.
AVNW’s strong fundamentals are reflected in its POWR Ratings. It has an overall grade of B, which equates to a Buy rating in our POWR Ratings system. The stock also has an A grade for Growth and Sentiment. It also has a B grade for Value and Quality. Click here to see additional grades for AVNW (Stability and Momentum).
AVNW is ranked #4 out of 55 stocks in the B-rated Technology-Communication/Networking industry.
Franklin Wireless Corp. (FKWL)
FKWL is an intelligent wireless solutions provider. The company's machine-to-machine (M2M) and the Internet of Things (IoT) solutions include embedded modules, modems and gateways built to deliver reliable always-on connectivity supporting a spectrum of applications. Its products are designed to solve wireless connectivity challenges in a range of vertical markets including video surveillance, digital signage, home security, oil and gas exploration, kiosks, fleet management, smart grid, vehicle diagnostics, and telematics. It has a market cap of $201.43 million.
For the fiscal 2021 second quarter (ended December 31, 2020) FKWL’s total revenue increased 399.5% year-over-year to $66.25 million. Its gross profit increased 335.7% year-over-year to $11.29 million. The company’s net income increased 850.5% year-over-year to $6.98 million. Its EPS came in at $0.58, which represents a 1060% year-over-year rise.
On March 26, 2021, the company received approval to list on the Nasdaq Capital Market. Its common stock started trading on the exchange on March 29, 2021 under the same symbol, FKWL. The company also sent its first shipment of a new 5G broadband router, the 5G CPE/Home Gateway, in January to a tier one carrier in South Korea, after completing certifications and testing. The stock has rallied 334.3% over the past year and closed yesterday’s trading session at $17.40.
The POWR Ratings are also high on FKWL as it has an overall grade of A, which translates to a Strong Buy rating. The stock also has an A grade for Value, Sentiment, and Growth, and a B grade for Quality. Click here to see the additional grades for FKWL (Momentum and Stability).
FKWL is ranked #2 in the Technology - Communication/Networking industry.
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CTS shares were trading at $30.94 per share on Friday afternoon, down $0.34 (-1.09%). Year-to-date, CTS has declined -9.77%, versus a 9.98% rise in the benchmark S&P 500 index during the same period.
About the Author: Ananyo Guha Niyogi
Ananyo’s ardent interest in capital markets, wealth management, and financial regulatory issues, led him to a career as an investment analyst. His goal is to educate individual investors by making complex financial issues easy to understand.
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