Nows the Time to Buy These Hated Tech Stocks

With the market hovering near all-time highs, investors are likely hesitant to start new positions in any high-flying stocks. At times like these, it can be smart to check out some less popular stocks, like those that have underperformed the S&P 500's 7% year-to-date gain.

Three well-known tech stocks appear on that list.Qualcomm (NASDAQ: QCOM) and IBM (NYSE: IBM) respectively fell 9% and 8%, while Cisco (NASDAQ: CSCO) rose just 5%. Let's see why investors are shunning these three stocks, and why it could actually be the right time to buy them.

Image source: Getty Images.

Qualcomm

Over the past few years, mobile chipmaker Qualcomm ceded market share to cheaper rivals like MediaTek and first-party chips from big OEMs like Huawei. It was also fined in China and South Korea over its wireless patent licensing tactics. In January, the FTC sued Qualcomm, alleging that it leveraged its patent portfolio to marginalize other chipmakers.

Apple (NASDAQ: AAPL) then sued Qualcomm over similar issues and unpaid rebates, then instructed its suppliers to withhold royalty payments from Qualcomm -- which forced the chipmaker to slash its current quarter revenue forecast by$500 million. All these brutal headwinds spooked investors and weighed down Qualcomm's stock.

However, investors should remember that Qualcomm will likely close its $47 billion takeover of NXP Semiconductors (NASDAQ: NXPI), the biggest automotive chipmaker in the world, later this year. That purchase will enable Qualcomm to evolve into a more diversified chipmaker while strengthening its patent portfolio.

Investors will need to wait a few quarters for those benefits to kick in, but they'll be paid with a solid forward dividend yield of 3.9% in the meantime. Moreover, Qualcomm's current P/E of 20 is well below the industry average of 25 for semiconductor makers -- which should limit its downside potential.

IBM

IBM's revenue has fallen year-over-year for20 straight quarters, and analysts don't expect that trend to reverse anytime soon. That's because IBM's higher-growth "strategic imperatives" businesses (cloud, analytics, mobile, social, and security) just aren't growing quickly enough to offset the ongoing slowdowns in its legacy IT services, hardware, and software businesses.

IBM CEO Ginni Rometty. Image source: IBM.

Big Blue is trying to get back on track by divesting weaker businesses and acquiring new ones, but it faces an uphill battle with rivals like Amazon and Microsoft eyeing the same high-growth markets. Even Warren Buffett seemingly lost faith in IBM, announcing that he had sold about 30% of Berkshire Hathaway's stake in IBM back in February.

But looking ahead, IBM's strategic imperatives are still growing, it can acquire more companies to boost its revenue growth, and investing in next-gen technologies -- like quantum computing, blockchain, and AI -- could keep it well ahead of the tech curve. More importantly, it's a cheap stock with a high yield. Its current P/E of 13 is lower than the industry average of 19 for IT services companies, and its forward yield of 3.9% is nearly double the S&P 500's current yield of 2%.

Cisco

Cisco is one of the world's biggest makers of routers and switches. Unfortunately, demand for its networking hardware is drying up due to market commoditization and the rising use of "white box" generic hardware running on open source software. Those pressures caused Cisco's revenue growth to remain nearly flat overthe past few quarters.

Image source: Cisco.

Cisco is trying to counter that slowdown by investing more heavily in its higher-growth businesses, like cybersecurity, collaboration, and wireless solutions. But just like IBM, those "faster growing" businesses just aren't growing fast enough to offset the soft demand for its routers and switches. But over time, these new investments should bear fruit as Cisco gradually evolves from a network hardware vendor to a diversified provider of enterprise software.

That transition will take time, but Cisco's P/E of 16 is much lower than the industry average of 29 for communication equipment vendors, and its forward yield of 3.7% should keep income investors happy. Just like the other two stocks, Cisco's low valuation and high yield should prevent it from falling much further.

But curb your expectations...

Qualcomm, IBM, and Cisco were left out of the market's rally for clear reasons, so investors shouldn't expect them to catch up anytime soon. However, investors who are looking for more conservative dividend plays in a frothy market should take a closer look at all three stocks.

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Teresa Kersten is an employee of LinkedIn and is a member of The Motley Fool's board of directors. LinkedIn is owned by Microsoft. Leo Sun owns shares of Amazon, Cisco Systems, and Qualcomm. The Motley Fool owns shares of and recommends Amazon, Apple, Berkshire Hathaway (B shares), and Qualcomm. The Motley Fool recommends Cisco Systems and NXP Semiconductors. The Motley Fool has a disclosure policy.