3 Beaten-Up Tech Stocks: Are They Bargains?

Broken smartphone sitting on table.

The tech sector has performed well this past year, for the most part, but that doesn't mean there aren't a few companies that are suffering. Take for instance Verizon Communications (NYSE: VZ) , Snap Inc . (NYSE: SNAP) , and IBM (NYSE: IBM) . Their share prices all fell far below the S&P 500's overall gains of about 17% this year and each is trading at a significant discount compared to their peers.

But that doesn't necessarily make all these stocks a bargain, so let's take a closer look at what's going on with each company and which ones might see their share prices turnaround.

Verizon Communications

Verizon has failed to beat, or even keep pace, with the market over the past 12 months and its share price is currently down about 5% as of this writing. The company faced a few setbacks over the past year that included AT&T and T-Mobile stealing away customers with their unlimited plans, as well as rivals making significant network gains that have closed the gap with Verizon's wireless services.

In the past, Verizon was able to rely on its vastly superior network to outpace its peers, but as its competitors have started to catch up there's been less of an incentive for Verizon customers to stick around, especially when Verizon was stubbornly refusing to offer unlimited plans as its competitors were rolling them out.

Verizon has since introduced a handful of unlimited plans and that has helped the company earn back some customers lately. In the third quarter 2017, Verizon added 274,000 net postpaid subscribers. That comes at the same time as Verizon is currently slashing $10 billion from operational costs, mainly as a result of falling revenue from increased wireless competition and declining sales from the telecom's wirelines businesses.

But I don't think now is the time for investors to shy away from Verizon. The company's shares are trading at just 13 times Verizon's forward earnings, well below the tech industry average, and its customer losses are finally subsiding. Verizon is still the nation's No. 1 wireless carrier by customer numbers and it's already testing new 5G technologies that could give the company an advantage over its rivals once more.

If you add all of that up and throw in the fact that Verizon's dividend is at a plump 4.7% right now, then it looks like the company is a solid bargain. Sure, there will likely be some more ebbs and flows for the company, but I have a hard time believing that all of Verizon's current customer gains, cost-cutting measures, and investments in 5G won't pay off soon.

Snap Inc.

I have to admit that I was intrigued just a bit when I first heard that Snap was going public earlier this year. The company appeared to have a substantial user base, a decent product, and I thought that perhaps its quirkiness would set it apart from the rest of the social media and messaging apps. Boy was I wrong.

Sure, the company is still bringing in new users and growing revenue. Third-quarter sales were up 67% year over year and daily active users increased to 178 million. The top line grew thanks to Snap's new sales platform that makes it easier -- and sometimes cheaper -- for businesses to buy ads on the company's Snapchat app. The company even did a redesign of its app recently to help make it more appealing to new users. But that's basically where the good news ends.

Snap is hemorrhaging money right now and has spent about 30% of its cash over the past six months. The company posted an earnings loss of $443.2 million in the quarter and Snap fell short of its own guidance for both its top line and its customer growth.

But the real kicker for Snap, and the main reason why I don't see the company as a bargain -- despite its share price drop of 40% since its March IPO -- is that there doesn't appear to be any unique Snapchat feature that Facebook 's Instagram can't copy.

Instagram essentially copied Snapchat's Stories feature last year and already has more than 300 million daily active users creating their own stories -- more than all of Snapchat's users combined. To sum it all up, Snap is hurting financially right now, it's not growing customers fast enough, and its biggest rival is successfully copying all of its key features. This stock may be in the basement, but a bargain it is not.


With its share price trading at 11 times the company's forward earnings and its stock down about 7% over the past 12 months, a lot of value investors might have their eye on IBM right now. And that might not be an entirely unwise move.

The company has done a good job of growing its cloud revenue, which increased 25% year over year in the third quarter 2017 and has added $15.8 billion to IBM's top line over the past year. IBM is looking to its cloud services to drive future growth and this year the company signed a $1.7 billion, 10-year deal to provide cloud services for Lloyds Banking Group in the U.K. That may not be a monumental deal in and of itself, but it's giving credence to the idea that IBM can compete in the cloud computing space.

Additionally, IBM expects the cognitive computing market to be a $2 trillion industry by 2025 and the company believes that its Watson artificial intelligence (AI) technology will benefit nicely from it. The company is still building out this business and working to attract more customers, but it certainly hasn't been left behind in the AI market just yet.

And then there's IBM's very attractive 3.9% dividend, which likely sweetens the deal for many income investors looking for a bargain.

I don't think I'd personally be willing to jump in with IBM right now, given that the company's sales have been sliding for more than five years and the company is still in the midst of a huge transition. But at these bargain prices and with the company's rising potential in AI and cloud computing I understand why some value investors would consider it.

Ultimately, any of the above stocks could look like a bargain to different investors. But if I had to choose one of the three it would certainly be Verizon. The company's position in the wireless space is still strong and it's taking the right steps to shore up its business for many more years to come. Throw in the company's low price-to-earnings ratio and strong dividend and you have yourself a pretty good deal.

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Chris Neiger has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Facebook and Verizon Communications. The Motley Fool recommends T-Mobile US. The Motley Fool has a disclosure policy .

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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