1 Russell 2000 Stock to Buy and Hold for Data Center Upside

The explosive rise of artificial intelligence (AI) and cloud computing has ignited an unparalleled demand for data centers over the past year. While these facilities were already gaining traction before the AI revolution, largely fueled by the booming bitcoin mining industry, the tech industry’s swift pivot to AI has accelerated the construction and usage of data centers to unprecedented heights. As businesses scramble to store, process, and harness vast troves of data, the call for reliable, high-speed, and scalable data center solutions has never been more urgent.

With demand for data centers showing no signs of slowing, projections indicate that the global data center market is poised to hit a whopping $416.1 billion by 2024, climbing to $624.1 billion by 2029. This demonstrates a steady compound annual growth rate (CAGR) of 8.5% spanning 2024 to 2029.

Introducing Belden Inc. as a Standout Investment Opportunity

For investors looking to gain exposure to this booming sector, Belden Inc. (BDC), a component of the Russell 2000 Index (RUT), emerges as a standout investment opportunity. The company is strategically positioned to capitalize on the rising demand for reliable, high-speed data centers.

About Belden Stock

Founded in 1902 and based in Saint Louis, Belden Inc. designs and markets high-performance signal transmission solutions for mission-critical applications worldwide. Belden offers an extensive array of products, including copper and fiber connectivity solutions, as well as power and cooling systems for data centers. Furthermore, it provides comprehensive network solutions for industries such as 5G, building automation, and beyond.

Belden serves diverse sectors like commercial real estate, healthcare, education, and mass transit, ensuring seamless connectivity and secure, high-speed operations across the globe. Currently valued at a market cap of around $4.8 billion, shares of this cable vendor are up a notable 50% in 2024, significantly outshining the broader S&P 500 Index’s 20.3% return on a year-to-date basis.

Shareholder Returns and Strategic Growth Initiatives

While Belden remains laser-focused on growth, it has also prioritized rewarding its shareholders. On August 22, the company announced a quarterly dividend of $0.05 per share, set to be distributed to shareholders on October 8. This brings its annualized dividend to $0.20 per share, translating to a yield of 0.17%. Additionally, on September 12, Belden announced a $300 million share repurchase authorization, boosting its total to an impressive $415 million when combined with an earlier plan.

Belden’s CFO, Jeremy Parks, highlighted that the company’s successful solutions transformation and disciplined operations have led to consistent revenue growth, improved margins, and strong free cash flow.

Belden’s Q2 Earnings Beat Estimates

Shares of Belden gained more than 8% on August 1 after the company released its Q2 earnings results, which surpassed Wall Street’s projections. Revenue stood at $604.3 million, a drop of 13% year-over-year, driven primarily by lower market demand, yet still exceeding forecasts of $574.2 million. The company’s adjusted earnings of $1.51 per share declined by almost 21% year-over-year, but still topped forecasts by an impressive 11.9% margin.

CEO Ashish Chand remarked, “In this dynamic environment where customers continue to work through inventory, our team executed well, delivering moderate sequential growth in orders for the third consecutive quarter.” Moreover, the company successfully closed on its acquisition of Precision Optical Technologies during the quarter, significantly enhancing Belden’s fiber portfolio. For Q3, management anticipates revenue between $635 million and $650 million, with adjusted EPS expected to fall between $1.55 and $1.65. Belden forecasts annual EPS growth in the 10-12% range through 2028, alongside mid-single-digit revenue growth.

Analysts’ Expectations for Belden Stock

Analysts tracking Belden project the company’s profit to drop by 11.6% annually in fiscal 2024 to $6.04 per share, before rebounding with a 28.6% year-over-year growth to $7.77 per share in fiscal 2025. William Stein, a semiconductor analyst at Truist Securities, has reiterated a “Buy” rating on BDC, even as he downgraded the broader tech group due to valuation concerns. Given the stock’s prospects, Stein believes Belden—alongside AI chip giant Nvidia—still has sufficient upside potential to maintain the firm’s top rating.

Overall, Wall Street remains optimistic about BDC stock, boasting a unanimous “Strong Buy” rating from all five analysts covering the stock. Although trading at a premium to its average price target of $114.60, the Street-high target price of $124 from Goldman Sachs implies an expected upside of 7% from current levels. From a valuation perspective, BDC is priced at 19.39 times forward earnings and 1.96 times sales, both of which represent a healthy discount to the respective tech sector medians of 24.48x and 2.91x. This suggests that Belden stock is reasonably valued at current levels.

In summary, with the rising demand for data centers and Belden’s strategic positioning within the market, investors may find this stock a compelling option for long-term growth in the AI and cloud computing era.