Given the continuing low-interest-rate environment, some fundamentally strong tech stocks are currently trading at lofty valuations. But considering their fundamental strength and the industry’s growth prospects, these stocks appear to have plenty of upside remaining. So, despite being expensive, we think Endava (NYSE:DAVA) and Fabrinet (NYSE:FN) could move higher in price based on their fundamental strength. So, let’s look closer at these names.Even though labor shortages, global supply chain constraints, and increased freight and shipping costs could mar the technology industry’s growth in the near term, tech stocks are gaining attention amid the continuing low-interest-rate environment.
Investors’ renewed interest in tech stocks is evidenced by the Technology Select Sector SPDR ETF’s (XLK) 6.7% returns over the past month. However, the current, ultra-loose monetary policy, in part, has led to stretched valuations for several tech stocks. Nevertheless, the ongoing digital transformation and increasing use of cloud computing, artificial intelligence (AI), and other advanced technologies should keep driving the technology industry’s growth. According to GoRemotely, the tech industry is expected to reach a $5 trillion market value by the end of 2021.
Consequently, we think it could be wise to bet on Endava plc (DAVA) and Fabrinet (FN). Though these two stocks are trading at lofty valuations, there could be plenty of upside still to be had because of their fundamental strength. These stocks are rated ‘Buy’ in our proprietary POWR Ratings system.