Investors have been dumping everything, including tech stocks, since the novel coronavirus hit. With the economy heading into a recession, it seems like a good time to raise some cash and play defense.
That doesn’t necessarily mean that people need to sell out of all their tech plays though. After all, humanity will get past this crisis, and when it does, the technology sector still holds the most promise for delivering the next generation of dominant companies.
In fact, one of best places for tech investors to look right now is at companies that are gaining from the current pandemic. Some of these are obvious. Zoom Video Communications (NASDAQ:ZM) has become a market darling because everyone is trying out its software for video calls. Similarly, Netflix (NASDAQ:NFLX) has surged as people stream more videos from home, given the lack of other entertainment options.
InvestorPlace spoke with Kevin Sylwester, who is the director for the School of Analytics, Finance, and Economics at Southern Illinois University. Discussing technological trends in the face of the coronavirus disruption, Sylwester told us that:
“5G, AI, and cybersecurity will have impacts over the long run. I don’t see any of them as a flash in the pan. Nothing about what is happening today suggests to me that the coronavirus will change how we think about these products once we return to normal. Therefore, if someone has an investment horizon of several years, I would not let what is going on now change my perception of these technologies and the markets associated with them. In fact, to the extent you believe that the market overreacted and is too low then this would be a great time to buy these stocks so as to realize a higher return.”
With that in mind, here are seven tech stocks to have on your radar covering 5G, cybersecurity and many other things that will continue to prosper despite the virus:
- Ericcson (NASDAQ:ERIC)
- Palo Alto Networks (NYSE:PANW)
- Facebook (NASDAQ:FB)
- Slack Technologies (NYSE:WORK)
- Avalara (NYSE:AVLR)
- Broadridge Financial Solutions (NYSE:BR)
- Roper Technologies (NYSE:ROP)
Tech Stocks to Buy: Ericcson (ERIC)
Assuming that 5G rollout will get back on schedule over the next few quarters, it’s worth taking a look at the telecom equipment makers. Ericcson, for example, fell from $9 to $6 during the crash, but has already bounced back above $8. It could make it back to $9 and go even higher in short order.
That’s because trust in Chinese suppliers is plunging. Between the trade war, the spying scandals and now the uncertainty around the coronavirus, there’s growing concern about buying key infrastructure equipment from Chinese vendors.
For example, the U.S. government has suggested that countries buy from a Western vendor for security reasons. The U.S. attorney general even raised the possibility of buying a telecom maker outright to protect against foreign competition. With Nokia (NYSE:NOK) and Ericcson being the only main alternatives, that puts them in great position assuming Huawei loses a big chunk of the market.
Once 5G is back on track, Ericcson stands to be a big beneficiary among tech stocks.
Palo Alto Networks (PANW)
Cybersecurity should be another winner from the current economic situation. Palo Alto Networks should be able to take advantage of the working-from-home movement.
As more mission-critical data has to pass through the cloud and ends up on potentially insecure home networks, it raises the stakes for hackers. As such, companies will invest more in their cybersecurity defenses to remain safe.
Sure, some of this may pass once everyone is back to work in normal conditions. Still, we can expect that many businesses will consider work-from-home preparedness to be a vital concern. Going forward, many firms will always be ready to do business remotely just in case. And that’s a big plus for Palo Alto.
Rosenblatt Securities upgraded Palo Alto stock to “buy” earlier this month precisely for this reason, citing an increase in demand as companies harden their data networks.
Facebook seems like a tech stock winner thanks to the current operating environment. However, the stock market hasn’t treated it as such. Facebook is still down nearly 20% from its pre-pandemic highs.
You can make an argument for why Facebook is underperforming other tech stocks. Facebook primarily relies on advertising, and we’ve heard some scary numbers on that front. Many online advertisers market travel, restaurants and events such as concerts. Most of those services are currently shut down. As a result, the advertising revenue pie has shrunk for the time being.
On Tuesday, however, Alphabet (NASDAQ:GOOG, NASDAQ:GOOGL) announced significantly better-than-expected revenues and guidance for next quarter. It seems that Google is making up for falling ad rates with more advertising impressions. That makes sense, given how much time people are spending online right now. While we don’t know exactly how Facebook’s business has fared, the Google numbers are a positive indicator.
For a lot of people, Slack falls in the same camp as Zoom. They are businesses whose value has shown itself during the work-from-home phase of the pandemic. But investors are skeptical how much of the increased usage will last after the health crisis passes.
However, I’m much more optimistic for Slack than I am for Zoom. For one thing, Slack’s shares are still trading well below where they did last year. This means it’s much easier to make the valuation case for Slack than Zoom.
Slack also has fewer competitors. Microsoft (NASDAQ:MSFT) and its Teams product is the clear rival. Whereas, for Zoom, you have a bunch of big names already fighting for the video-calling space. More entrants, like Facebook, are joining the fray.
Also, Slack is a more complete ecosystem — many people will keep using Slack once they return to their offices. The necessity of a standalone video calling app, by contrast, is less certain. Of the popular work-from-home tech stocks, Slack is one worth holding onto as the crisis starts to recede.
Avalara, like Slack, is another tech company that benefits from the economic effects of the coronavirus. But Wall Street hasn’t discovered it yet — you don’t see Avalara on CNBC every day. But you may in the future.
That’s because Avalara is providing a vital service in these rough times. It offers small and medium-sized web businesses tax compliance software. When online shops sell products across state lines, they have to collect tax in many jurisdictions, all of which have different tax rates and different rules about tax-free or tax-reduced items.
Avalara also offers solutions for specialized products, like liquor sales. Online liquor sales may not have seemed like a big opportunity before, but now in this stay-at-home world, it’s suddenly a major consideration.
Avalara had already been riding a major wave after a 2018 Supreme Court decision made it far easier for states to collect tax online. Businesses have rushed to get their tax systems up to speed before fines start for companies that are out of compliance. The coronavirus will accelerate this trend. Avalara is also rapidly expanding into foreign markets, and offers solutions for companies that operate in one country but sell goods in another.
To make matters even better, Avalara is a major partner of Shopify (NYSE:SHOP). Shopify stock has positively soared in recent weeks as more retail moves to e-commerce channels. Avalara is built right into Shopify, and is sure to collect massive new revenues streams from it. However, unlike Shopify, Avalara stock hasn’t hit new all-time highs yet. That could change in a hurry.
Broadridge Financial Solutions (BR)
Broadridge is a leading fintech company focused on software solutions for the financial services industry. It started life as a spinoff from Automatic Data Processing (NASDAQ:ADP), the massive payroll automation provider.
Broadridge offers similar functionality, but has brokerages and investment banks as customers. Like ADP, Broadridge has also been a rockstar. Shares are up close to 500% since the spinoff back in 2007, and the company raises its dividend every year by a double-digit figure, making it an explosive growth and income holding.
The company made its start with proxy services. When you receive corporate communications or participate in a shareholder vote, you’re often using Broadridge’s technology. The company does many other things, such as running dividend reinvestment plans (DRIPs) for shareholders. The company has a greater than 95% customer retention rate, as these are vital services with minimal competition. Broadridge can raise prices a few percent every year and customers don’t blink.
And, regardless of the economy, Broadridge does pretty well. Companies need to communicate with shareholders and reinvest folks’ dividends in both good times and bad, after all. Broadridge’s earnings fell just 5% during the financial crisis despite serving struggling investment banks as customers.
Furthermore, with the company’s aggressive expansion into software for wealth management companies, Broadridge should enjoy another strong decade.
Roper Technologies (ROP)
For patient investors, Roper Technologies is an interesting pick now. The company is rare among tech stocks, in that it has a long-term unbending commitment to its dividend. It has increased its dividend payout for more than 25 years in a row, making it a rare tech-industry Dividend Aristocrat. And, it has grown the dividend by 18% per year over the past five years, offering shareholders massive pay raises.
How does Roper manage it? It is essentially an industrial software conglomerate. It buys up small software companies for all sorts of industries, ranging from energy and power plant management to graphic design and insurance brokering. Roper collects cash flow from all its software operations and selectively reinvests cash into the most attractive ones to drive further growth. It regularly rotates the portfolio, pruning mature brands and picking up fresh ones.
While, at any given time, Roper tends to have something that is struggling — such as energy right now — its unparalleled diversification protects it from vulnerability to any particular economic shock.
And the current crisis may help Roper in the long run. The company relies on acquisitions for much of its growth; it will be able to buy many software firms on the cheap now given the cash flow issues occurring for many small businesses today.
Ian Bezek has written more than 1,000 articles for InvestorPlace.com and Seeking Alpha. He also worked as a Junior Analyst for Kerrisdale Capital, a $300 million New York City-based hedge fund. You can reach him on Twitter at @irbezek. At the time of this writing, he owned FB, AVLR, BR and ROP shares.