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What are we looking for?

U.S. technology companies that have held their own during the market downturn.

The screen

Regardless of the chatter about a looming recession, a well-diversified investor may want to reduce, but still selectively maintain, exposure to technology stocks – which have taken the brunt of the market downturn in 2022. The average technology company in the United States is down 34.3 per cent year-to-date according to FactSet, however a select few have held their own and even have a positive total return this year.

To identify outperforming technology stocks, we used FactSet’s Universal Screening tool to pull all publicly traded technology companies listed on any U.S. exchange. We further narrowed down our list using the parameters below:

  • Market capitalization greater than US$100-million;
  • A positive year-to-date total return;
  • A positive free cash flow and net income, last 12 months (LTM);
  • A positive 2023 sales growth forecast, according to analysts;

Lastly, we ranked the companies that met our screen criteria with a multi-factor process using three valuation ratios: 1) price-to-earnings, 2) price-to-free-cash-flow, and 3) price-to-sales.

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FactSet is a leading global financial data and technology company. FactSet’s superior suite of content, analytics and workflow services covers the entire portfolio life cycle and offers actionable insights for asset managers and investment professionals around the world.

What we found

U.S. tech stocks that have withstood market sell-off

RANKCOMPANYTICKERINDUSTRYMKT. CAP. (US$ MIL.)YTD TTL. RTN. (%)LTM FCF (US$ MIL.)LTM NET INCM. (US$ MIL.)2023 EST. SALES GRTH. (%)P/EP/FCFPRICE TO SALESDIV. YLD. (%)1Y TTL. RTN. (%)RECENT CLOSE (US$)
1SciPlay Corp. SCPL-QSoftware1,769.90.2171.818.47.917.41.90.5n/a-16.013.81
2Rimini Street Inc.RMNI-QTech. Consult. Svcs.537.93.586.178.411.79.16.01.3n/a-1.96.18
3Int'l Business MachinesIBM-NTech. Consult. Svcs.126,928.38.29,281.05,578.03.421.312.71.84.75.7141.12
4PC ConnectionCNXN-QIT Distribution1,157.92.23.281.54.217.0438.20.5n/a-2.744.08
5Amdocs Ltd.DOX-QTech. Consult. Svcs.10,373.813.9546.2554.77.418.518.42.31.99.084.45
6Parsons Corp.PSN-NSoftware4,244.621.6224.775.76.757.619.51.2n/a3.040.92
7NetScout SystemsNTCT-QSoftware2,493.31.7297.737.04.265.58.02.8n/a16.333.64
8Check Point SoftwareCHKP-QSoftware15,864.36.21,239.2802.15.122.614.58.2n/a6.1123.83
9Citrix Systems Inc.CTXS-QSoftware12,396.03.5655.3277.74.946.019.73.91.5-15.997.93
10Tower SemiconductorTSEM-QSemic. Equip./Svcs.4,991.215.2127.8175.75.229.941.93.4n/a55.645.71
11Activision Blizzard Inc.ATVI-QSoftware61,432.418.82,139.02,474.020.225.429.47.60.6-15.878.57
12eGain Corp.EGAN-QSoftware318.50.315.71.216.7340.623.34.1n/a-14.210.01

Source: FactSet

There are a total of 567 technology companies in the U.S. with a market capitalization of more than US$100-million. However, only 57 of these have had a positive total return in 2022. Layering on the additional profitability and forecasted growth requirements, we were surprised to learn that only 12 companies passed our screen, as our parameters are not that stringent. In fact, a rerunning of the same screen – as of one year ago – resulted in 187 companies meeting our criteria, which shows how the times have changed for technology companies. Investors will need to be far more selective.

SciPlay Corp., an online video game publisher headquartered in Las Vegas, topped our screen. SciPlay had its initial public offering via spinoff in 2019, at US$16 a share. Investors could be getting a bargain, as SciPlay recently closed well below its IPO price at $13.81 a share, despite reporting a record US$613-million in LTM sales (not shown), which is substantially higher than the US$465.8-million reported in its IPO year. As the owner of popular online casino games such as Jackpot Party Casino and Quick Hit Slots, SciPlay may benefit from a recession, as travellers who might no longer be able to afford a trip to Las Vegas or Macau could turn to online alternatives through one of SciPlay’s easily accessible offerings.

International Business Machines Corp., an integrated information technology services provider, ranked third on our screen and offers the highest dividend yield at 4.7 per cent. Founded in 1911, IBM may offer resiliency as it has withstood the likes of the Great Depression, the dot-com bubble and the 2008 financial crisis. Additionally, income seekers will be pleased to learn that IBM has raised its dividend each and every year for 27 years.

The information in this article is not investment advice. FactSet assumes no liability for any consequence relating directly or indirectly to any action or inaction taken based on the information contained above.

Arjun Deiva, CFA, is a vice-president at FactSet Canada’s consulting division.

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