Tech stocks get a bad name at times. Sometimes it’s due to valuation. Other times it’s because the trauma of the dot-com boom-and-bust weighs on investors. But whatever the reason, investors should keep an open mind when it comes to tech.
At times, the sector can command higher premiums than what many investors are used to. But traditional companies, including most industrial companies, cannot generate the type of growth and profitability that comes from tech.
It’s because of this superior growth, superior moats and superior margins that many high-quality names in this group are worth a premium. It just takes an open mind and some digging to find which tech stocks are worth one’s while.
Admittedly, there are a number of high-flying tech stocks with too high of a valuation and too poor of a moat to justify their price. The issue compounds when the company is not profitable, which unfortunately, is not uncommon in tech. But with that being said, the very best returns in the market have been generated by companies in this sector. Therefore, we cannot ignore it.
With that, let’s look at seven tech stocks to consider buying for more gains.
- Alphabet (NASDAQ:GOOGL, NASDAQ:GOOG)
- Nvidia (NASDAQ:NVDA)
- Pinterest (NYSE:PINS)
- Qualcomm (NASDAQ:QCOM)
- ServiceNow (NYSE:NOW)
- Shopify (NASDAQ:SHOP)
- FarFetch (NYSE:FTCH)
Tech Stocks: Alphabet (GOOGL, GOOG)
I want to lead off this list of key tech stocks to buy with a big one: Alphabet.
GOOGL stock seems to have it all. Robust financials, strong profitability, a wide moat and now, stellar performance.
The company has its bread-and-butter businesses — digital ads and online search — which it dominates with YouTube and Google. By the way, Google.com and YouTube.com are the top two most popular websites in the world, if you wanted to talk about digital real estate.
With total assets of $299.2 billion and cash and equivalents of $132.6 billion, the company has grown to be a titan. But cross that with long-term debt of just $13.9 billion in this low-rate environment and we have a company that can endure just about any economic situation.
The icing on the cake is how it’s performing against its FAANG peers. Typically not the most robust performer, Alphabet stock is fresh off new highs. It’s handily beating each FAANG component over the last one and three months, having investors optimistic about its run going into 2021.
Nvidia has been one of the best-performing large cap tech stocks during this pandemic-filled year. The company already had robust growth before the novel coronavirus came to be, but the virus only helped accelerate the company’s growth.
I like Nvidia for one main reason, which is that it’s building the backbone of tomorrow’s technology.
For investors, it’s great that Nvidia is seeing strong data center and GPU demand thanks to our altered Covid-19 world. However, it’s the long-term runway I am interested in.
When people look at the chart for NVDA stock, they notice what a steal it was below $200 per share. But now north of $500, many simply cannot justify buying in after having “missed the boat.” For growth investors though, they can’t justify not being involved in the name.
The growth estimates have increased drastically for this year and next. So while the stock price has rallied quite a bit, it’s because of this massive increase in sales and profit. For instance, at the start the year, current estimates called for less than $11 billion in sales. Now? Consensus expectations sit at $16.5 billion.
Whether it’s in artificial intelligence, gaming, data center, self-driving cars, drones, chips or other businesses, Nvidia has so much runway left it’s impossible to measure.
Pinterest has quietly become one of the best plays in social media.
PINS stock is up 275% so far this year and more than 250% over the past 12 months. The next closest competitor is Snap (NYSE:SNAP), which is up 182% and 200% during the same timeframes, respectively.
Pinterest has a lot of very unique opportunities, making it one of the tech stocks investors should keep an eye on.
Shares are at new highs as we head into December, a busy time of the year for online shoppers. Pinterest is a great platform because it masquerades as a social media platform, but really, serves as a gateway to online sales.
Shoppers turn to Pinterest when they are looking for inspiration. In other words, they are already in the mood to buy and/or create — they just need to figure out the what and how. That’s what analysts are looking for to fuel 40%-plus revenue growth in fiscal 2020 and 2021.
After breakeven bottom-line results in 2019, estimates call for 29 cents per share this year in profit, followed by more than 100% growth estimates in 2021. Plus with $1.65 billion in cash and equivalents and no debt, the balance sheet here is strong.
Qualcomm is a unique opportunity, in my view. The company just had a solid year, earning $4.19 per share in fiscal 2020, up almost 20% from the prior year. However, estimates are forecasting an even bigger year in FY 2021.
QCOM stock analysts expect revenue to grow 39% this year, alongside almost 70% earnings growth. While it may be a little early to be talking about next year’s forecasts given that we’re only into fiscal Q1 of this year, estimates call for a continuation of growth in FY 2022. While expecting revenue growth of just 8%, earnings estimates call for another 11% increase.
While 8% growth looks small compared to 40% growth and 11% growth seems small compared to 70% growth, an optimist might say both figures look great given the robust year Qualcomm should have in 2021.
Why the growth spurt? The coming 5G revolution is spurring growth across an entire landscape of companies. For its part, Qualcomm is simply riding the wave in its favor, and its top and bottom line show it.
Plus, a 1.8% dividend doesn’t hurt. While not huge, it’s more than double the 10-year Treasury yield.
Given that ServiceNow has a market cap north of $100 billion, I feel that it’s a company more people should be familiar with. But when I talk to some investors, NOW stock is conspicuously missing from their tech stocks watchlist.
Should it be there? Absolutely. ServiceNow calls itself the “platform of platforms,” adding that “behind every great experience is a great workflow. As the foundation for all digital workflows, the Now Platform connects people, functions, and systems across your organization.” Further:
“ServiceNow delivers digital workflows that create great experiences and unlock productivity…We transform old, manual ways of working into modern digital workflows. Employees and customers get what they need, when they need it—fast, simple, easy.”
If you’re looking for consistency in the world of tech, this company has it. Estimates call for roughly 30% revenue growth this year and 25% growth next year. On the earnings front, those estimates sit at 36.7% and 23%, respectively.
With just $1.7 billion in long-term debt, that’s very minor for a company of this size. Plus, the technicals look great.
I can’t picture a world without e-commerce and neither can the investment community. While Amazon (NASDAQ:AMZN) is the titan in the room, I want to focus on Shopify.
The company has taken a different approach to e-commerce. Rather than dominating the entire experience, Shopify gives its customers the tools to build a robust e-commerce operation, while also allowing them to control the experience.
And, rather than dominating the entire process, Shopify simply aims to profit off the various products and services it offers. Whether that’s on digital store fronts, shipping, warehousing and logistics, payment processing and more, that’s where Shopify’s bread and butter is. In other words, it has built a subscription-as-a-service (SaaS) business, but it’s also set to benefit from the rising gross merchandise value (GMV) from its customers’ sales. That’s smart.
Further, it’s here to help everyone. That includes mom-and-pop shops, a consumer packaged goods conglomerate or a makeup empire.
The biggest gripe has been the SHOP stock valuation, which is admittedly a bit lofty. But it’s always been lofty and that’s why we see it now commanding a market capitalization near $120 billion.
Covid-19 is acting as a major accelerator for this year’s growth, with revenue forecast to climb about 80%. However, I don’t think this is a one-time catalyst. I think the coronavirus accelerated the trends already in place — e-commerce included.
Last, but not least, is a relative newcomer to the list of tech stocks to watch: FarFetch.
The company came public in September 2018 at $20 per share. On its first day of trading, FTCH stock rallied more than 50%, giving FarFetch a market cap of about $8.3 billion.
However, the stock hit its all-time high of $32.40 on its third day of trading and had really struggled to penetrate the $32 area until this year. After being rejected from this level once more in August, FarFetch really broke out in November, surging above $50 in the process.
Remember, that came after FTCH stock hit a low of $5.99 in March during the coronavirus selloff.
So what does FarFetch do? In its own words, it’s the “leading global platform for the luxury fashion industry. Our mission is to be the global platform for luxury fashion, connecting creators, curators and consumers.”
For anyone that thinks there’s no growth in that, forget about it. Analysts expect 60% revenue growth this year and 33% growth next year. For the price and its growth, I think paying 8x forward sales isn’t all that bad.
On the date of publication, Bret Kenwell held a long position in GOOGL, NVDA, PINS and SHOP.