If you’re interested in the top stocks in the technology sector, you’re almost inherently interested in the city of San Francisco. I’m not just talking about venture capitalists looking for the next Google, either; as the tech capital of the world, San Francisco is home to lots of big-name publicly traded tech stocks as well.
To that end, The San Francisco Chronicle recently released a list of the 75 largest San Francisco tech employers — a good number of which are available to Wall Street investors. The report noted that “the 75 largest San Francisco tech employers hired 7,000 employees in the city over the past year as the industry continues to expand.”
But while adding employees should in theory translate to growth, not all the names on the list qualify as impressive. Yahoo (YHOO) was No. 18 on the list yet is arguably in a death spiral; LendingClub (LC) and Yelp (YELP) have each lost around half their value so far in 2015; several publicly traded tech companies are hiring but not yet profitable. You get the point — the list isn’t entirely comprised of top stocks.
So, we took a look at the top third of the list and pulled out companies dominating San Francisco with their size and their performance on Wall Street. While the average year-to-date gains for the group are slightly in the red, the top five are all beating the S&P 500 and all but one are beating the market-leading Nasdaq as well.
Take a look at our top stocks in tech.
Top Stocks #4 — LinkedIn (LNKD)
Year-to-date gains: 5%
Tech employer ranking: 9
While LinkedIn (LNKD) is technically headquartered in Mountain View, it’s growing its San Francisco offices … along with its share price. Since the start of the year, shares of the tech company have crept around 5% higher on relatively high volatility since the start of the year. That volatility includes 40% gains since the stock hit a bottom back in late August.
Perhaps most notable, though, is the fact that LinkedIn has moved more or less higher since hitting the public markets — perhaps thanks to the fact that LinkedIn has been a poster child for a profitable tech company. LNKD now has 9,200 full-time employees with offices in 30 cities around the world.
Many startups have a good idea or good technology but, they tend to lack a sound business model or pour all their revenue right back into R&D. Many even grow up and head to Wall Street without a profitable business model in place. Very few of them go on to become top stocks.
LinkedIn, though, has been profitable since 2006 — several years before its IPO. As USA Today just noted, that discipline has translated to a far better performance than Twitter, despite the fact that Twitter boast stronger (but still disappointing) user growth.
Top stocks #3 — Adobe (ADBE)
Year-to-date gains: 24%
Tech employer ranking: 7
Having a sound business model is crucial, but so is having a willingness to adapt that business model as needed. That’s exactly what Adobe (ADBE) has been doing — and the moves have paid off. The company has topped analyst expectations each of the last four quarters, quadrupled the Nasdaq’s year-to-date performance and racked up a 210% run over the last five years.
That substantial and steady upward momentum is impressive considering Adobe dropped its licensing model for a subscription one as more and more businesses and users opted for cloud-based tools. The move initially resulted in substantial earnings drops, ADBE has proven to be one of the top stocks in tech.
Credit the gains to management’s transparency, the established tech company’s willingness to change, and a strong foundation built on strong products. For the cherry on top, the company — which has more than 1,000 employees in the tech capital — is slated to grow earnings by more than 30% annually going forward.
Top Stocks #2 — Salesforce (CRM)
Year-to-date gains: 35%
Tech employer ranking: 1
You simply can’t talk about San Francisco without talking about Salesforce (CRM) — the largest tech employer of all. CEO Mark Benioff grew up in the city and launched the transformative software company from a rented San Francisco apartment back in 1999.
At this stage in the game, Salesforce is a tried and true tech behemoth and disruptor. CRM shares hit the public markets back in 2004 and have gained 1,900% since day one. Meanwhile, the “software-as-a-service” model that Benioff originated has become almost commonplace.
This year alone, CRM stock has shrugged off the market’s weakness and indecision to book 35% gains. Meanwhile, the company’s Dreamforce conference takes over the city each year while its under-construction Salesforce Tower will be the tallest building in the city.
While the tallest building indicator may spark concerns about a tech bubble, CRM does at least have solid earnings growth on tap: 30% per year going forward vs. just 18% for the last half-decade. Then again, that rate looks a little less impressive vs. a forward P/E north of 80.
Top Stocks #1 — Alphabet (GOOGL)
Year-to-date gains: 44%
Tech employer ranking: 3
Last but not least, we have Alphabet (GOOG, GOOGL), the holding company for Google. The stock continues to blow away the competition … except perhaps Salesforce’s.
The two companies have been more or less neck in neck so far in 2015, with Alphabet barely coming out on top. But zooming out, both went public back in 2004 and Google is actually lagging Benioff’s baby with mere 1,300% gains.
Okay, so maybe that’s not exactly “underperformance” in the strictest sense. Calling Alphabet or Google a laggard simply illustrates how well Salesforce, or perhaps tech leaders more broadly, have been doing. Alphabet’s innovations have been transformative to say the least, while the company continues to push the ball forward with self-driving cars, artificial intelligence and more.
Heck, the company doesn’t just dominate San Francisco, but arguably dominates the entire tech world.
Alyssa Oursler is based in San Francisco and writes about technology, investing, gender and entrepreneurship. Her work has appeared on Forbes, Business Insider, MSN Money and more. You can follow her on Twitter here or check out her personal site here. As of this writing, she did not hold a position in any of the aforementioned securities.
