Tech stocks have been in bear mode ever since the election of Donald Trump, Alphabet Inc (NASDAQ:GOOG, NASDAQ:GOOGL) is off 6%. Amazon.com, Inc. (NASDAQ:AMZN) is down roughly the same. Investors have been rotating out of tech and into other categories such as banking and energy, which seem like sure-fire beneficiaries of the Trump Administration.
But as is the case with most selloffs, the current dip in tech stocks is providing a nice opportunity for value investors.
I think everyone should be jotting down tech stocks to buy on their Christmas wish lists. But investors should still keep in mind that there are some serious headwinds facing the sector.
Yes, Donald Trump has offered up heated rhetoric about immigration and trade — both critical areas that can affect the fortunes of tech companies. But there’s also a lot of uncertainty regarding Trump’s policies in general, and that alone can have another adverse effect on the tech sector. That is, that could make numerous companies less willing to make big-ticket tech purchases.
Still, the market has been deeply discounting a number of tech stocks that should be able to come out ahead despite the political landscape. With that, here’s a look at five stocks that should top your Christmas wish list:
Tech Stocks to Buy: PayPal (PYPL)
The mobile payments industry seems like a can’t-miss growth opportunity. According to eMarketer, U.S. volume alone is forecast to jump from $8.71 billion in 2015 to a whopping $210.45 billion by 2019. That’s more than 2,300%!
This year’s start of the holiday shopping season is pointing toward exactly why mobile payments should explode. Last week’s Black Friday was the first time that mobile purchases exceed $1 billion on a daily basis, according to research from Adobe Systems Incorporated (NASDAQ:ADBE).
And here, the Trump administration might actually provide some momentum. The deregulation of the financial services industry likely would be a positive — not just for the big banks, but for anyone in payments services, too.
All this seems to be very good news for PayPal Holdings Inc (NASDAQ:PYPL). The company, which is a pioneer of the online payments industry, has a tremendous brand, sophisticated infrastructure and a diverse platform of services, such as for international remittances and merchant systems. Plus, PYPL operates the Venmo payments app, which has become a must-have for millennials.
I like the valuation on PayPal stock right now, which stands at 23 times forward earnings. That seems more than reasonable in light of the projected growth rate of 17% for the next five years.
Tech Stocks to Buy: Advanced Micro Devices (AMD)
This has already been a standout year for Advanced Micro Devices, Inc. (NASDAQ:AMD), with shares logging a torrid 200% gain.
But 2016 might just be a warm-up.
AMD has been undergoing a massive transformation and is gunning for mega markets like augmented reality (AR) and virtual reality (VR).
However, the real game-changer should be the datacenter. Right now, Intel Corporation (NASDAQ:INTC) controls about 98% of the market and it is a big-time money maker. During 2015, the segment threw off about $7.8 billion in operating profits for INTC. And now AMD is positioning itself for a piece of the pie.
A key advantage is the company’s long history of developing graphics chips, which are becoming critical for next-generation artificial intelligence (AI) for cloud computing. And potential customers such as Alphabet, Amazon and Facebook Inc (NASDAQ:FB) would almost certainly like an alternative to Intel, as it should spark better pricing.
During the first half of next year, AMD plans to launch its new chip architecture called Zen, which will hit the sweet spot of the datacenter. The company already earned a victory here via a recent deal with Alibaba Group Holding Ltd (NYSE:BABA), the Chinese e-commerce site that operates about 35% of China’s websites.
Yes, AMD has a long history of disappointments and poor execution. But this time around, it looks like the company is putting together a spot-on strategy. And that should lead to continued gains for shareholders.
Tech Stocks to Buy: Cotiviti (COTV)
Another Trump effect should be major changes to the healthcare system. But even if another politician never laid a hand on healthcare policy, the sector would be focusing on cost-cutting.
And tech can help.
Just look at Cotiviti Holdings Inc (NYSE:COTV), which uses sophisticated machine learning and data analytics to help health plans and retailers uncover errors in billings. Last year, COTV realized savings of $2.7 billion for its clients.
An interesting aspect of COTV is that its platform becomes more valuable as more customers are added, with benefits growing as the database does. And Cotiviti already has a large set of customers. The ranks include 40 healthcare organizations, including eight top-10 U.S. healthcare payers and eight top-10 U.S. retailers.
Growth hasn’t been spectacular, but it has been consistent. Most recently, COTV announced a 14% third-quarter revenue increase to $152.2 million. EBITDA came to a hefty $61.6 million.
Tech Stocks to Buy: Microsoft (MSFT)
During the past couple years, Microsoft Corporation (NASDAQ:MSFT) has gotten its mojo back. More importantly, it looks like the momentum should continue for some time.
The leadership of CEO Satya Nadella has been critical. Part of this has been his willingness to make tough decisions, such as dumping the disastrous Nokia Corp (ADR) (NYSE:NOK) acquisition. But he has also doubled down on the cloud market. Nadella was savvy to leverage core advantages of MSFT, such as the trusted brand, global infrastructure and portfolio of mission-critical technologies. He has also made gutsy acquisitions, like the $26.2 deal for LinkedIn Corp (NYSE:LNKD) (the company has a user base of 467 million).
As a result, Microsoft is now the No. 2 player the market, with about 11% market share. This compares to Amazon’s 31%.
But there may be another interesting benefit for MSFT — and it could come next year. Trump appears serious about providing tax breaks to encourage companies to repatriate their cash to the U.S. While Apple Inc. (NASDAQ:AAPL) is always the first company discussed when it comes to this phenomenon, Microsoft has a hefty $113 billion in foreign accounts. If it suddenly can bring a bunch of that back with a smaller tax hit, MSFT will have more firepower for M&A, share buybacks and larger dividend payouts.
Tech Stocks to Buy: New Relic (NEWR)
When it comes to developing enterprise technologies, Lew Cirne has a sterling record. Back in the 1990s he launched Wily Technology, which he sold to CA, Inc. (NASDAQ:CA) in 2006 for $375 million.
But that was not the end of his ambitions. He did not waste much time in starting his next venture, New Relic Inc (NYSE:NEWR). He saw a big-time opportunity in developing a platform to allow organizations to create software that is much more robust and stable. The focus also would be on cloud computing and mobile applications.
Needless to say, the growth of NEWR has been particularly strong, with a 48% increase to $63.4 million in the latest quarter. The company has continued to make major strides in snagging larger customers Cisco Systems, Inc. (NASDAQ:CSCO) and Domino’s Pizza, Inc. (NYSE:DPZ). More than 400 customers spend more than $100,000 a year on New Relic software, and more than 20 shell out over $1 million.
No surprise, then, that the system crunches enormous amounts of data. In Q2, about 25 trillion events were processed. According to Cirne:
“As more people connect with New Relic, it generates a scalable and data rich feedback mechanism that can help improve our value proposition and optimize our customers’ digital experiences. This is a significant, sustainable, competitive advantage that we have versus traditional on premise vendors, who are blind and in a silo, unable to process or share these connections.”
Granted, New Relic isn’t exactly cheap, as shares trade at 7 times sales. But that kind of premium is deserved when you’re a company with a unique set of technologies that address a large market opportunity.
Tom Taulli runs the InvestorPlace blog IPO Playbook and also has his own tax preparation firm. Follow him on Twitter at @ttaulli. As of this writing, he did not hold a position in any of the aforementioned securities.