Summer correction? What summer correction?
A serious rebound for the markets in the month of October has investors scrambling through their wish lists looking for stocks to buy. Bullishness has returned, and there’s perhaps no better place to put that optimism to work than among tech stocks.
That’s because despite the roaring run, a number of tech stocks have remained in the doldrums, but as a result, continue to look good from a valuation standpoint. (Others have solid valuations despite impressive movements of late.)
Today, we’ll look at a number of these underappreciated or otherwise promising stocks that also have excellent long-term prospects — companies that are targeting growth categories such as the cloud and mobile.
Here’s a look at six such tech stocks to buy for 2016 and beyond:
Tech Stocks to Buy: Adobe Systems Incorporated (ADBE)
For the past few years, Adobe (ADBE) has made bold moves to the cloud that have yielded strong results.
Investors should expect more good times ahead.
Adobe has top-tier products for major growth areas. For example, the company’s flagship Creative cloud — which includes applications like Photoshop, Illustrator, Premiere Pro and various other apps — just added 684,000 subscriptions in the latest quarter to reach 5.3 million.
Adobe also has strong offerings for its Document Cloud, which includes Acrobat, and also the Marketing Cloud, which helps companies improve results on platforms like Alphabet (GOOG, GOOGL) Facebook (FB) and Twitter (TWTR).
At Adobe’s latest analyst meeting, the company presented a bullish case for the long-term growth ramp. ADBE is forecasting annual earnings growth of 30% on average, as well as revenue growth of 20%, until fiscal 2018.
Meanwhile, the valuation on ADBE stock is reasonable, with shares trading at 31 times forward earnings estimates. Compare that to other cloud names such as Salesforce.com (CRM), which trades at 80X, and ServiceNow (NOW), which trades at 143X!
Tech Stocks to Buy: Micron Technology, Inc. (MU)
2015 has been a year to forget for Micron (MU), whose shares have been halved so far for the year-to-date.
But things appear to have stabilized, and MU stock finally might be worth considering as a buy.
Micron has spent the past few years transforming its business, including lessening its reliance on the PC market, which has been in a secular decline. But, at the same time, MU has been making savvy acquisitions, such as for Elpida and Rexchip, which have helped to boost market share in growth markets and also brought on new customers, including Apple (AAPL).
However, the big driver is likely to be Micron’s 3D chips, which will allow for much more power and efficiency. No doubt, there should be lots of traction from Intel (INTC), a strategic partner that will provide global distribution for the technology.
And it should go without saying that after a cleaving like the one MU stock has taken in 2015, shares are dirt-cheap. Micron trades at just 7 times forward earnings — which probably explains why MU has found some support for the past few months.
Tech Stocks to Buy: Fitbit Inc (FIT)
While other, larger companies have churned out wearables, it’s worth pointing out that Fitbit does have some powerful barriers to entry. For one, FIT has a thriving ecosystem of partners that develop apps for the company’s devices. There is also an extensive distribution footprint, such as its relationships with more than 45,000 retail stores, including Best Buy (BBY).
And it helps that the Fitbit brand is synonymous with wearables.
Momentum should be strong for the rest of the year. In fact, InvestorPlace’s John Divine believes that Wall Street’s revenue estimates for the next quarter are on the light side. He points out that the past two quarters have seen tremendous spikes, and that FIT should start to get traction with new initiatives, such as with the moves into the corporate wellness market.
And the market for wearables still appears to be in the early stages. According to International Data Corporation, the segment is expected to see shipments go from 19.6 million in 2014 and to 126.1 million by 2019, to about $27.9 billion in revenues.
For those looking for tech stocks to buy in this category, FIT is a great choice.
Tech Stocks to Buy: FireEye Inc (FEYE)
Cybersecurity firm FireEye (FEYE) has been far from a secure investment this year — FEYE’s price movements have resembled an out-of-control roller coaster for much of 2015.
However, FireEye’s latest move to the downside looks like an opportunity to get on board.
FEYE has a full range of offerings for cybersecurity, with a focus on key threat vectors including web, email, file storage and networks. FireEye also has a next-generation approach that relies on real-time, dynamic threat assessments — not just the brute force recognition of signatures and patterns.
Another important part of the business is Mandiant, which provides elite consulting for data breaches to high-profile customers including Sony (SNE), Anthem (ANTM), Home Depot (HD) and Michaels (MIK). The consulting business has proven a great way for the cross-selling of software and other services.
While FireEye’s stock has struggled, the company’s growth hasn’t slouched. During the latest quarter, revenues spiked by 56% on a year-over-year basis, and the company added 300 new customers, bringing the total to more than 3,700.
Future growth prospects look similarly promising. According to research from analysts at Bank of America, the enterprise cybersecurity market is expected to grow from $15 billion in 2015 to about $19.5 billion by 2018.
Tech Stocks to Buy: Alphabet Inc (GOOG, GOOGL)
Alphabet (GOOG, GOOGL) has been working hard to make the transition to mobile — and it looks like process is going extremely well. After all, the company has posted two consecutive blowout earnings reports.
The good news is that there appears to be no slack in the momentum — making Alphabet still a good pick for stocks to buy.
Interestingly enough, Alphabet has been even been getting more mindful on the cost side — not an easy task for Silicon Valley companies, which tend to spend with abandon. For example, during latest quarter, operating expenses remained at 37% of overall revenues on a year-over-year basis.
Google also has been aggressive with implementing new monetization systems. To this end, the company has recently introduced install ads (GOOGL gets a fee when a user downloads an app) for Google Play, and the company has introduced new ad formats, too.
Such efforts have been critical for the nice lift in aggregate paid clicks, which were up about 23% on a year-over-year basis. The consensus was for about 18.6%.
But more importantly, GOOGL remains a strong growth story. The company has standout assets like Google Search, Android, Chrome, Google Maps and, of course, YouTube – each of which have more than 1 billion users.
Granted, Alphabet doesn’t have a truly cheap valuation, trading at 21 times forward earnings — but there aren’t many good comparisons to Alphabet, and given that the company is a top player in some of the world’s most lucrative markets (mobile, online video), it should certainly command a premium.
Tech Stocks to Buy: Care.com Inc (CRCM)
As the name implies, Care.com (CRCM) is an online platform that helps with childcare, senior care and even pet care.
Investors could care less, but that could be a huge oversight.
While CRCM has made some blunders, such as its acquisition for Citrus Lane (Care.com dumped the business in the most recent quarter), Care.com still is a leader in its category, with 17.8 million members in 16 countries.
Care.com offers services like matching of caregivers, payments, background checks, monitoring and tax services. CRCM also has been moving aggressively in the corporate market.
Mobile is a big-time priority, and the company has been showing some innovative flair in that area. An example is the recently launched Date Night app, which makes it easy for couples to plan entertainment. Plus there are interesting opportunities for monetization, such as with lead generation with partners like OpenTable and Fandango.
An aging U.S. population should spur continued demand for Care.com’s services, though the market is already massive as is. According to research from IBIS, about $280 billion was spent in the U.S. on daycare, in-home care providers, housekeepers, nursing, tutoring and pet care.
CRCM stock is also fairly cheap, with a price-to-sales ratio of 1.35 that compares nicely to valuations at other online marketplaces — HomeAway (AWAY) trades at 6 times sales, while Zillow (Z) trades at 10.
Tom Taulli runs the InvestorPlace blog IPO Playbook. He is also the author of High-Profit IPO Strategies, All About Commodities and All About Short Selling. Follow him on Twitter at @ttaulli. As of this writing, he did not hold a position in any of the aforementioned securities.
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