3 under-the-radar tech stocks to buy for 2022 and beyond

Manufacturer of security doors and locks Allegory (ALL -1.64%) and industrial conglomerates honeywell international (HON -0.71%) Y Roper Technologies (ROP -1.27%) they are not the first companies that come to investors’ minds when they think of technology companies. But the key to the investment case for all three stocks lies in the developing technology. As such, investors in this space should take a look.

1.Honeywell International

The management of the industrial giant intends to become a “software industry”. It wants to get there through continued deployment of its analytics software platform, Honeywell Forge. The platform enables industrial companies to transform their operations digitally.

For example, building owners can use Honeywell Forge to combine a wealth of digital data collected from the building and produce actionable insights to improve building efficiency and meet carbon emission goals. This is the so-called “intelligent building” concept. It’s similar to improving the performance of a retail store or an airplane.

As such, Honeywell Forge’s relevance plays into Honeywell’s portfolio of industrial assets, from aerospace to construction technologies, materials technology and productivity solutions.

The company’s software business, Honeywell Connected Enterprise (HCE), has grown its software recurring revenue at a 14% annual run rate since 2019, and management believes this growth in HCE will also drive sales growth. in its segment of industrial products. Also, margins should expand over time, as software companies typically have a higher margin profile.

All of this means it’s time to stop thinking of Honeywell as just an industrial company. Instead, his software investments (including an exciting quantum computing business) mean he’s leveraged for the growth of digital technology in the industrial world.

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2. Roper Technologies

Honeywell’s move from listing on the New York Stock Exchange to listing on Nasdaq in 2021 reflected its transformation into an industrial software company, so Roper Industries’ name change in 2015 reflected its continued development.

Roper Technologies operates an unusual but very successful business model. Management acquires high-margin, asset-poor niche players and integrates them into the company. However, they tend to remain under their current administration. Operating decisions are made at the local company level, with Roper’s senior management addressing capital allocation issues and providing assistance. The cash flow generated by the acquired businesses is then pooled centrally, used to pay down debt, and the acquisition process begins anew.

Following this strategy over the years has resulted in a very software-centric company. That process has been accelerated by the recent announcement of the sale of most of its industrial businesses, including its process technologies and measurement and analysis businesses.

Roper will now report its operations across three segments: application software, network software, and technology-based products. The business portfolio includes niches such as business management software for law firms, software solutions for the commercial construction industry, and automated meter reading technology, among many others.

All of this means that investors should think of Roper primarily as a software company, and once the market recognizes that fact, it could result in a valuation reappraisal. It would make sense for savvy investors to use traditional software companies as peers for valuation purposes, and Roper looks pretty cheap right now, as seen in the chart below.

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ROP EV to EBITDA chart
Data by YCharts.

3. Allegory

The security door and lock company currently generates 80% of its revenue from mechanical products, with the remaining 20% ​​from electronic products. However, it has significant growth potential from the convergence of mechanical and electronic technology and the increasing use of digitally connected solutions through the Internet of Things (IoT).

With digital technology, commercial building owners can better manage, control and monitor who has access to what area and how much time they spend in it. This provides security and productivity benefits to building owners.

Additionally, current penetration rates for electronic locks in residential and non-residential markets are low (7% for US residential and 14% for US non-residential), giving Allegion has a long growth road ahead.

Allegion is not a technology company at the moment, but its growth potential lies in the growth of digital technology, which makes its stock worth considering for tech investors.

Lee Samaha has positions at Honeywell International. The Motley Fool has positions and recommends Adobe Inc., Autodesk, and Salesforce, Inc. The Motley Fool recommends Roper Technologies and recommends the following options: $420 long calls in January 2024 at Adobe Inc. and $430 short calls in January 2024 at Adobe Inc. The Motley Fool has a disclosure policy.

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