The market is on a winning streak heading into the end of 2019. The S&P 500 is up 26% on the year, and tech stocks, as measured by the Nasdaq 100 (NASDAQ:QQQ) are up a scorching 32% with two months left to go. We’re in year ten of the bull market, and there are still no signs of a slowdown.
In fact, folks are now talking about a so-called “melt-up” where shares rise significantly into year-end. With traders making it through the historically dangerous October without a scratch, seasonal factors now support a big bull run higher as the holidays approach.
That leads to the question of what to buy, however. With the market at all-time highs, many leading shares are already really expensive. Within the tech sector, however, there are still some opportunities. For once, tech companies haven’t been leading the rally higher in recent months. Rather, previously out-of-favor sectors like financials and utilities have dominated the market surge.
Tech, by contrast, is relatively out of the spotlight. This means that there are plenty of quality growth companies that have more room to surge before the end of the year. Here are seven tech stocks to have on your radar.
The market continues to treat Software-as-a-Service (SaaS) stocks with great skepticism. The sector as a whole has seen the average stock drop 20-30% from summer highs, even as the overall market hits new records. And this earnings season has been difficult. Stocks that miss the numbers are getting pounded for massive declines, while an earnings beat results in rather modest gains.
Alteryx (NYSE:AYX) is a great example. The company delivered another quarter of outstanding results. Shares initially spiked nearly $10 high in after hours trading, then investors had second thoughts. AYX stock even traded down briefly the next day on its blowout earnings report before more rational money stepped in and bought the dip.
Long story short, Alteryx is already solidly profitable — a rarity in the SaaS space — and it is growing at more than 60% per year. With shares down by a third from their recent highs, AYX stock is a leading hyper-growth firm trading in a steep correction. Shares could rip back to $150 in no time once sentiment improves.
Business is booming for the sales tax software firm. Last year, the Supreme Court ruled that states can force online retailers to collect sales tax from e-commerce companies, even if those companies have no physical presence in a particular state.
This has lead to a flood of states passing new laws to charge tax on all e-commerce transactions. That, in turn, is driving loads of business straight to Avalara, hence the massive increase in revenue growth and new client sign-ons. The company has reported six quarters of accelerating revenue growth rates and is positively booming. With more states bringing new taxes online this year, and Avalara also starting to expand internationally, there should be plenty of room left for the company to post more solid numbers.
With the latest numbers out Tuesday, the company expanded its overall customer base 10% and grew revenues more than 40% year-over-year. It crushed both EPS and revenue expectations, and posted strong guidance.
Regardless, given the current aversion to SaaS companies, AVLR stock has wobbled even though it reported strong numbers. AVLR stock initially jumped 5% on the quarterly results but has now traded back down to where it was prior to the earnings release. This sets up a great opportunity for traders heading into year-end.
Like with Alteryx, AVLR stock should pick up after the current round of SaaS jitters ends. AVLR stock recently traded as high as $95 and is now in the high $60s; there’s plenty of upside to be had as the market surges through the remainder of 2019.
Texas Instruments (TXN)
Texas Instruments (NASDAQ:TXN) is another leading tech company that got hit by the curse of high expectations. The semiconductor firm recently reported good earnings, but investors had been hoping for even more. As a result, TXN stock suffered a sizable haircut, with shares dropping nearly 10% following the earnings report.
This momentary weakness, however, is an opportunity to buy into one of the tech sector’s most durable growth machines. Given its focus on analog semiconductors, Texas Instruments has a stable income stream and isn’t reliant on the latest phone or hot consumer electronics device to deliver consistent growth.
Yes, TXN has exposure to the iPhone 11, but unlike many semi firms, it doesn’t live or die by the latest consumer product. It offers thousands of patent-protected chips serving a ton of niches, many involving sensors and data monitoring for real world applications such as weather tracking. These chip designs tend to have a much longer lifespan than the sort that go into PCs, phones, and other fast-evolving devices, ensuring revenue stability for the company.
While no semiconductor company is totally recession-resistant, Texas Instruments tends to fare much better than more cyclical rivals during a downturn. With risks such as the trade war continuing to cause softness, it’s not a bad time to play some defense in semiconductors. At just 22x forward earnings and offering a fast-growing 3% dividend yield, TXN is a conservative pick that should bounce back after its unjustified earnings sell-off.
Spotify (NYSE:SPOT) jumped strongly on its recent earnings report. In fact, SPOT stock has run up from $120 to $150 recently. But don’t let the price increase scare you away; Spotify is still a great value within the tech space.
And shares traded as high as $190 last year. Spotify had been in a deep slump until this past month. Generally, the time to pick up tech companies is right when they are hitting the inflection point from consistently generating losses to turning a profit.
Historically, a bunch of fallen tech IPOs have managed to revive their share prices the moment they start turning an accounting profit. Twitter (NYSE:TWTR) was a notable recent example; shares tripled in 2017-18 as the social media firm became profitable after years of reporting losses. Spotify has flipped a similar switch with this latest quarter where it unexpectedly announced a profit. The knock on the music streaming operation has long been that record labels take too much of the profits from subscriptions, leaving only crumbs for Spotify.
But the company is increasingly proving that narrative wrong. Diversification into merch sales, podcasts, and other ancillary businesses will continue to boost Spotify’s margins over time. Spotify’s current $26 billion valuation will look like a steal in a few years as the company posts a string of rising quarterly profits.
Speaking of Twitter, the recent slowdown could be an opportunity. It’s remarkable, really, that Twitter hasn’t figured out some way to generate consistent strong profit and cash flow growth yet. The service is indispensable for its power users; there’s nothing else that compares for keeping up with breaking news across a vast variety of topics and geographies.
Also, Twitter’s ad platform has notably improved. It’s not close to matching Alphabet (NASDAQ:GOOG, NASDAQ:GOOGL) or Facebook (NASDAQ:FB) yet, but it’s a strong competitor for the number three spot. Particularly heading into a U.S. presidential election, Twitter should be set to shine.
Yes, some folks sold TWTR stock last week following the company’s announcement that it will not accept political ads. Facebook, by contrast, is taking a wide variety of political ads, even if they aren’t necessarily fact-checked for accuracy. It’s easy to say that Facebook is taking the cynical (and profitable) approach, while Twitter misses another big revenue stream.
I’m not certain Twitter’s decision is an error though. It misses juicy short-term revenue, that much is clear. Over the long-haul, however, Twitter is continuing to build its platform’s credibility. In the wake of all the other social media scandals, TWTR can carve out a place for itself as a trusted leading source of news.
Will it ever generate the sorts of profits that it theoretically should be able to? That’s an open question. Given the continued improvement in Twitter’s brand, however, you have to think that an acquirer will eventually buy out the whole company if Jack Dorsey doesn’t crack the monetization puzzle on his own.
Unlike many of the tech companies, Facebook left no room for worry with their latest earnings report. The company continues to fire on all cylinders as far as the actual numbers go.
Sure, there are plenty of cursory reasons to worry about FB stock. Management remains seemingly out of touch. The latest rebranding effort to Facebook just screams “trying too hard.” And Facebook stock would be worth even more at this point if Zuckerberg and the other executives had taken more decisive steps in dealing with their various scandals of late.
Regardless, don’t overthink it. FB stock is an incredible opportunity, as investors have penalized the company too heavily for its warts. It’s amazing to consider that Facebook’s earnings are growing at 23% per year. Analysts see Facebook maintaining an enviable 21% annual growth rate over the next five years. Meanwhile, it is selling at just 20x forward earnings. In this sort of booming market, it’s most rare to get to buy a tech stock that has a faster earnings growth rate than its P/E ratio. 2019 may well be the last opportunity we’ll have to buy FB stock under $200 per share.
Finally, we have Intel (NASDAQ:INTC). There’s certainly been a lot of uncertainty around INTC stock in the short-run. We have less visibility than normal into Intel’s earnings thanks to the trade war. And unusually strong competition from AMD (NASDAQ:AMD) has shaken Intel’s usually-dominant market position slightly.
Still, over the long-haul, little has changed. Intel may be in the high $60-per-share range instead of 80% market share in PC chips for the moment. Regardless, it retains a far larger R&D budget than AMD and will likely maintain its competitive advantage over time.
Meanwhile, that cash flow from the computing business continues to help Intel transition into future years. The company has spent heavily on new fields such as autonomous vehicles. Intel will start to harvest the fruits of these investments in coming years. In the meantime, INTC stock is one of the cheapest large tech firms out there and pays a decent 2.2% dividend yield as well.
At the time of this writing, Ian Bezek owned AYX, AVLR, SPOT, INTC, TXN, and FB stock. You can reach him on Twitter at @irbezek.