We recently compiled a list of the 10 Best Tech Stocks to Buy Right Now Under $10. In this article, we are going to take a look at where Alight Inc. (NYSE:ALIT) stands against the best tech stocks to buy right now under $10.
Are Dips in Tech a Buying Opportunity?
The S&P 500 experienced its worst week since March 2023 in the week ending September 8, marked by a significant decline of 4.3%. This downturn was primarily triggered by a disappointing August jobs report, which revealed that US employers added only 142,000 jobs, falling short of the expected 161,000. This unemployment rate drop caused fears of a potential recession.
Investor sentiments are complicated by the Fed’s upcoming policy decisions, as the weak labor data prompts speculations about aggressive interest rate cuts, with some analysts anticipating a potential rate cut of 25 basis points and others suggesting an even more aggressive 50 basis point reduction.
However, the US market experienced a notable rebound on Monday, driven by renewed investor focus on inflation, which remains a critical factor influencing potential interest rate cuts by the Fed. The S&P 500 climbed just over 1%, recovering about a quarter of its 4% decline.
When markets are as volatile as now, investors become more cautious. Most analysts still maintain the opinion that volatile markets are opportunities for long-term investments and help in diversifying portfolios. In fact, we just talked about this earlier in our article about the 10 Worst Broadcasting Stocks to Buy According to Short Sellers. Mona Mahajan, a senior investment strategist at Edward Jones, thinks that while dips are a buying opportunity, it might be time to diversify away from tech stocks in particular. Here’s an excerpt from that:
“She advocates for long-term investors to take advantage of market downturns, as market volatility provides ideal entry points for investing in undervalued assets.
Mahajan also addressed the broader economic landscape, including the performance of large-cap technology stocks, which she noted may not be the haven they once were, as in 2023 or the first half of 2024. This suggests a need for investors to consider diversification beyond tech stocks. Still, she thinks that AI is a driving force in the market, suggesting that it will play a crucial role in various sectors over the next several years.”
At the same time, some analysts think tech stocks will remain popular for the full year 2024. Jason Draho, UBS Global Wealth Management head of Americas Asset Allocation, just emphasized that investors should view potential dips in tech stocks as good long-term buying opportunities, as 10% corrections are historically good entry points in tech.
While he’s optimistic about the technology sector, he acknowledged that the volatility will likely persist due to concerns about export controls and AI monetization. However, several factors make this sector attractive for the rest of the year. First, companies reported strong earnings results, although they were not as spectacular as desired. Second, the AI CapEx investment story has potential upside for next year. Third, from a portfolio perspective, these companies are high-quality with solid earnings and balance sheets.
He thinks that this market volatility is acyclical. The recent sell-off in the tech sector was not primarily due to economic concerns but rather to sector-specific issues. Despite this, tech giants will continue to benefit from the AI CapEx investment story. While there may be short-term challenges, the long-term outlook for these companies remains positive. Focusing on the broader tech sector, rather than the MAG 7, is a better strategy for investors seeking to capitalize on the AI boom.
Earlier this year with the UBS Global Investment Returns Yearbook this year, Draho projected the global technology sector to deliver 18% earnings growth in 2024, and AI revenues to grow at a 72% annualized rate over the next 5 years as adoption broadens across companies. This presents significant opportunities for investors.
Draho also cautioned against over-concentrating portfolios in the sector. He suggested diversifying exposure by investing in sector leaders as well as companies likely to benefit from tech disruption as a way to manage potential downside risks in tech stocks. He also suggested exploring other areas, such as quality stocks, including regional champions in Europe and Asia, alternative growth themes like the energy transition and healthcare disruption, or small- and mid-cap stocks.
Diversification in managing risks and growing long-term wealth can also come through other means. The UBS Global Investment Returns Yearbook reports that a diversified equity portfolio across 21 countries would have 40% less risk than a single-country investment. A balanced portfolio with a 60/40 split between stocks and bonds, has historically been less volatile than a portfolio composed solely of stocks.
Methodology
We used the Finviz stock screener to screen for technology companies that were trading at less than $10 per share. We sorted our screen by market cap and looked through the top 25 stocks that matched our criteria. We picked the 10 from those that were the most widely held by hedge funds, as of Q2 2024. The stocks are ranked in ascending order of the number of hedge funds that have stakes in them.
Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points (see more details here).
Alight Inc. (NYSE:ALIT)
Number of Hedge Fund Holders: 42
Share Price as of September 10: $7.20
Alight Inc. (NYSE:ALIT) is a platform company for HR management focused on employee benefits, payroll, and overall well-being. It is a leading cloud-based human capital technology and services provider for many of the world’s largest organizations and has been an industry leader with 4 decades of experience serving 70% of the Fortune 100 and half of the Fortune 500
The company won new clients like UPS, Wayfair, American Honda, and Adecco Group in Q2. Such expansions have resulted in 42 hedge funds holding long positions in the company as of June 30. The total shares held are 43,395,000, with the highest stake valued at $320,255,100 by Starboard Value LP.
The company reported a 2.36% decline in the year-over-year revenue, generating $787.00 million in total revenue, which was $2.9 million lower than analyst estimates. Still, the annual recurring revenue (~90% of the total revenue) bookings were up 9% in the first half versus the prior year, and have double-digit growth estimates for the second half of 2024.
The revenue outlook for 2024 has been updated due to lower demand for non-recurring projects. However, the core business will continue to grow, boosted by long-term contracts with many large companies. Since the company is trying to improve sales process and client experience to achieve 4-6% annual revenue growth, it’s safe to say that Alight Inc. (NYSE:ALIT) is well-positioned to lead the industry soon.
Greenlight Capital stated the following regarding Alight, Inc. (NYSE:ALIT) in its Q2 2024 investor letter:
“However, it wasn’t all roses. We had three material losers in the long portfolio (and an undisclosed loser in the short portfolio), and deservedly so. Alight, Inc. (NYSE:ALIT) fell from $9.85 to $7.38. While the core business is quite steady with a high degree of recurring revenues, it underperformed slightly in the first quarter. Additionally, the smaller and lumpier parts of the business disappointed for the second quarter in a row. Management’s deteriorating credibility has compounded the issue and the situation has attracted an activist investor. We now expect the company to either change management or sell itself.”
Overall ALIT ranks 3rd on our list of the best tech stocks to buy right now under $10. While we acknowledge the potential of ALIT as an investment, our conviction lies in the belief that AI stocks hold great promise for delivering high returns and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than the stocks on our list but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article is originally published at Insider Monkey.
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