The fabled end-of-year rally is upon us, so the question is – are you ready?
Tech stocks in the Nasdaq index have been on a bit of a bender since the end of October. Investors might collectively believe strongly in marquee names. True, Nvidia (NASDAQ:NVDA) or Amazon (NASDAQ:AMZN) still have the potential to surge higher.
Beyond the big names, investors should focus on the smaller tech stocks. These companies have favorable enterprise value-to-market cap ratios, with many are witnessing explosive top-line revenue growth.
Also, they’re likely to benefit from a considerable rise in their stock prices amid the entire market moving higher. But these stocks now when they can be scooped up at a relative bargain compared to their likely January price.
So, for investors in the market to buy tech stocks, let’s examine three now.
Cerence (CRNC)
Cerence (NASDAQ:CRNC) is a little-known AI stock making waves. CRNC stock specializes in voice recognition and natural language understanding. These technologies have broad current applications in products we use today.
Amazon’s Alexa is one example. But in the future, this tech could be used in high-end electric vehicles, such as Tesla (NASDAQ:TSLA).
Aside from CRNC’s catalysts for future growth, more supporting evidence suggests its stock price could take flight soon. Specifically, its revenue surged by 38.9% to $80.76 million last quarter. Additionally, its EPS was positive at $0.09, up from -$0.14 one year ago. These metrics have outperformed many peer companies, which suggests it could also be undervalued based on these metrics.
Regarding CRNC’s undervaluation, analysts’ consensus price target is $26.14, or 45.79% higher than the current price. Also, unlike most other tech stocks, CRNC is presently cash flow positive, which reduces its downside risk.
Therefore, there’s good reason to buy CRNC now based on its fundamentals before it becomes more expensive later.
Enphase Energy (ENPH)
If you’re after a tech stock operating in the renewable energy sector, then Enphase Energy (NASDAQ:ENPH) is your pick. ENPH stock specializes in the production of microinverters. These devices plug into solar panels to convert direct current to alternating current to power household products.
Some cursory glances at discount cash flow models suggest the stock is considerably undervalued. Of course, a large part of the reason it’s cheap is because it has been caught up in some controversy. ENPH seemed caught up in the over-enthusiasm for growth and meme stocks, and its valuation detached from its fundamentals. This occurred around the same time revenue growth slowed, but its top line remains firm year over year (YOY).
Still, despite its possibly temporary slowdown, its margins are improving through cost-cutting measures. And, it is presently cash flow positive with high revenue per employee. With the stock slipping 60% year to date (YTD), it could be poised to recover sharply in December.
Appian Corporation (APPN)
Appian Corporation (NASDAQ:APPN) is another tech stock that may rally near the end of the year. AAPN stock allows startups and entrepreneurs to develop applications using artificial intelligence (AI) quickly.
A key benefit of its offering allows companies to quickly build data workflows without expensive, risky overhead of maintaining large development teams.
Another way of thinking about APPN is its connection of customer databases and workflows with AI. This allows them to be controlled and interfaced in practical and creative ways.
Also, APPN is a standout pick for a stock that could rally because it’s trading near a new yearly low. Therefore, it could be undervalued on a momentum basis. Also, analysts’ average price target is $48.33, a 33.36% increase from the current price. Hence, the market seems to agree it’s due for an upward correction.
Also, other factors support the bull case. Those include $525.83 million revenue, future growth forecast of 18.85% over the next five years, and a robust gross margin of 72.57%.
On the date of publication, Matthew Farley did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.