Don't Forget About These Cheap, Fundamentally Strong Tech Stocks SGH and Skyworks Solutions are fundamentally strong tech stocks key to the manufacturing supply chain and trading at deep discounts to the market.

SGH (NASDAQ: SGH) and Skyworks (NASDAQ: SWKS) are grossly undervalued stocks given the underlying strengths of their businesses. These companies are tech companies but are also deeply exposed to the manufacturing world because of the components they make. That's right, electronic and digital components, the components that are needed by manufacturers and industries of all varieties and there is demand for the products. While there are some headwinds to be concerned about, namely COVID-related supply chain disruptions in China and slowing sales in some areas, the long-term outlook is more than robust. Not only is the world becoming ever more digitized but the old infrastructure, equipment, and consumer products have to be maintained, replaced, and upgraded.

SGH Pulls Back On Mixed Quarter

SGH reported a decent quarter, even a strong one, but a quarter plagued by headwinds as well. The company reported $438 million in net revenue for a decline of 6.4% versus last year which is slightly worse than expected. The revenue missed the Marketbeat.com consensus estimate by a slim 45 basis points on weakness in the LED and Memory Solutions segments. The Intelligent Platform Solutions segment grew by 49% while Memory Solutions declined by 15% and LED contracted by a stronger 33%. The mitigating factor is the slowdown in LED sales is due in large part to the shutdowns in China which have eased in the time since.

The good news is that margins are improving and driving impressive results on the bottom line. The company reported a sequential decline in the gross margin related but a YOY increase that outpaced the expectations. This left the adjusted earnings at $0.80 and down YOY but a full $0.15 better than expected which is good news for Skyworks Solutions. Skyworks Solutions reports the first week of November and is expected to post sequential and YOY growth.

SGH gave some iffy guidance as well but the details of why make it a problem for SGH alone. The company is expecting Q1 revenue in a range that neatly brackets the consensus estimates and even provides substantial room for an upside surprise but the margin outlook is weak. The company is expecting adjusted earnings of $0.60 +/- $0.15 compared to the $0.76 expected by the analysts. The mitigating factor is the guidance is cautious due to the recent acquisition of Stratus and may be much too low.

SGH And Skyworks, Value And Capital Returns For Shareholders

SGH and Skyworks Solutions both trade at deep discounts to the broad market and the tech industry at large. SGH offers the deepest value at 5.5X its earnings but Skyworks Solutions is worth the premium trading at 8.5X earnings and paying a dividend. Skyworks Solutions pays about 2.7% in yield with the stock trading at recent lows and there is a robust outlook for distribution growth. SGH doesn't pay a dividend at this time but it does buy back shares. The company repurchased 2.18 million shares for $39.8 million during the quarter or about 0.25% of the market cap.

The Technical Outlook: SGH And Skyworks Are Bottoming

SGH and Skyworks Solutions have been trading more or less in tandem since the pandemic bottom although SGH has shown more volatility. Both stocks have been pulling back from their post-pandemic highs, however, but are showing signs of bottoming now. The SGH news has the price action pulling back in pre-market trading but support should be confirmed near the recent low if not higher. Assuming Skyworks Solutions reports as expected, both of these names should begin moving higher and could reach the top of their respective ranges by the end of the year.