The recent sell-off in tech stocks has left many blue-chip stocks trading at deep discounts. For long-term investors, this presents an interesting opportunity to set up your portfolio for the next bull market. In this article, we’ve identified three tech stocks that we believe are particularly undervalued relative to their significant growth potential over the next decade.
These companies operate in large addressable markets and introduce disruptive technologies that have the potential to deliver impressive growth for years to come. Headwinds should turn into tailwinds for these high-growth tech stocks as interest rates near their peak.
I believe the following three tech stocks have the potential to realistically return more than 1,000% over the next 10 years. Allocating a portion of your portfolio to his three stocks today could potentially reward investors many times over in the future. Even small investments have the potential to generate life-changing compounding wealth.
So, let’s jump right in!
Semler Scientific (SMLR)
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Recent market volatility has hurt growing companies across the board. In a bear market, even blue-chip growth stocks can come under indiscriminate selling pressure as investors seek safety. however, semler scientific (NASDAQ:SMLR) is down over 75% from its peak level, this could be one of the best tech stocks worth considering. In my view, this drop is likely a massive overreaction, given that this innovative health tech company still has tremendous earnings growth potential. The stock’s current level therefore represents an ideal entry point before this hidden gem is discovered.
At first glance, Semler Scientific looks like a typical medical technology business. We develop, manufacture and market proprietary products that identify people at risk for cardiovascular disease. However, it would be short-sighted to classify this company as just a healthcare stock. What sets Semler apart is how heavily they use software in their products. Once fully built, this model offers incredible efficiency and scalability.
The company’s value proposition clearly resonates with the market. Revenue is expected to increase by nearly 20% in 2023 to $68 million. What’s even more impressive is that Semler is generating significant cash flow from these sales, as overhead costs remain light. Taking into account the minimal sales force, the company’s net profit margin is only 34%. That’s true software economics. On top of that, Semler’s earnings per share are expected to increase by nearly 50% this year.
I think the forward guidance looks conservative based on Semler’s recent performance. The company has now exceeded profit estimates for six consecutive quarters, with the most recent quarterly increase of approximately 40%. Additionally, Semler has exceeded revenue expectations for four consecutive quarters, including a 7.3% revenue surprise in the prior quarter. This consistent ability to beat expectations shows that Wall Street still underestimates Semler’s growth trajectory.
In my view, Semler deserves a higher earnings multiple, reflecting its high margins and solid growth. Semler’s current valuation is approximately 14 times expected earnings, trading at a significant discount compared to other healthtech software companies. Bringing these companies closer together to their software peers can yield short-term returns of 40% to 60%. In the long run, continued earnings growth can increase stock prices several times over. After all, Semler has $56 million in net cash on its balance sheet (virtually no debt), which provides plenty of cushion against volatility.
Riot Platform (RIOT)
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I rarely discuss crypto mining stocks, as most readers are likely to prefer traditional stocks or the underlying cryptocurrencies themselves. but, riot platform (NASDAQ:riot) is noteworthy at this time. Bitcoin (BTC-USD) The halving event scheduled for next year is approaching. At its current price, RIOT stock has the potential for explosive upside over the next few years if Bitcoin continues as it has since past halvings.
By way of background, the Bitcoin protocol undergoes a halving approximately every four years. This instantly reduces the block reward issued to miners by half. The last halving event occurred in May 2020, reducing the reward per block from 12.5 BTC to 6.25 BTC. Historically, upcoming halving events tend to cause an imbalance in supply and demand, causing the price of Bitcoin to rise significantly in the following months and then be withdrawn.
The next halving is scheduled for around April 2024, and the block payment will be further reduced to 3.125 BTC. If the established boom-bust pattern repeats, it looks like Bitcoin could be in for another impulsive price surge next year. As the top publicly traded crypto miner in terms of hash rate and Bitcoin holdings, Riot is well-positioned to take advantage of this potential upside.
Importantly, Bitcoin miners like Riot have been preparing for years to maintain profitability post-halving. By stockpiling Bitcoin and increasing efficiency, miners can effectively dollar-cost average into the next cycle. Riot currently owns a whopping 7,327 Bitcoins worth approximately $275 million.
Additionally, Riot made significant investments in 2023 to expand production capacity and reduce expenses. This brings Riot’s year-to-date cash mining cost per Bitcoin to an average of $5,537 so far. Bitcoin currently trades at around $37,000 and remains highly profitable per coin. This, coupled with a large amount of cash, also provides Riot with financial flexibility going into a volatile halving.
Of course, investing directly in Bitcoin comes with risks if the crypto winter resumes. However, Riot appears to be well-insulated given its cheap legacy production costs and ample liquidity. History shows that if Bitcoin soars after the halving, a rebound toward highs of $60,000 could result in a return many times over on Riot’s current valuation. For opportunistic investors who can tolerate some risk, RIOT stock definitely looks like a high-yield option worth considering holding for at least the next 12 to 24 months.
Earth orbit (LLAP)
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Innovation often happens in unexpected places. terran orbital (New York Stock Exchange:LLAP) represents the low-profile microcaps that are disrupting one of the world’s most proprietary industries: aerospace and defense. Despite extreme stock price volatility since its special purpose acquisition company (SPAC) merger, Terran Orbital maintains key advantages that should drive significant growth in the coming years. The company’s current valuation is $150 million, which could represent a significant return for investors if the company’s execution matches its vision.
By way of background, Terran Orbital manufactures small satellites primarily for U.S. government and defense applications. Although best known for its high-profile contracts with NASA and the Space Force, Terran Orbital makes most of its revenue serving civilian space needs. Its unique advantage comes from specializing in small satellites, customized to each client’s needs.
The demand for this niche market seems to be huge. Last year, with the expansion of space commercialization, companies and governments around the world launched more than 2,300 satellites. But while satellites are getting smaller, their capabilities and technological needs are only deepening. These are ideal elements given the Terran expertise. The company’s proficiency in delivering early Space Force LEO prototypes and NASA’s state-of-the-art lunar ice mapping equipment demonstrates its ability to adapt to complex, bespoke requirements.
Terran has supported its growth and currently has a huge backlog of $2.6 billion, which equates to thousands of future satellite builds. Management expects him to convert 80% of this backlog (more than $2 billion) into tangible revenue by the end of 2025. Reaching that pace would likely mean more than $1 billion in annual sales in just three years. Remarkably, Terran Orbital is already approaching profitability at this point, ignoring this large backlog.
This setting shares similarities with early-stage hypergrowth stories like the pioneers of space travel virgin galactic (New York Stock Exchange:space). But Terran Orbital trades a fraction of Virgin Galactic’s $800 million market capitalization, which remains very unprofitable. If Terran can meet its high earnings targets over the next three years, I expect its valuation to rise many times above today’s price.
Certainly, there are many risks. Furthermore, if management execution stagnates due to significant production expansion, there is a good chance that this stock will fall as well.
Still, Terran Orbital has important competitive advantages – domain expertise, strong customer relationships, and specialized manufacturing – that are difficult for competitors to replicate. Considering the company’s discounted valuation multiple, I think there is a lot of upside potential for LLAP stock. Wall Street analysts agree, predicting a 283% rise over the next year.
On the date of publication, Omor Ibne Ehsan did not have (directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the author and are subject to InvestorPlace.com Publishing Guidelines.
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