Tech stocks have been choppy so far in 2021, despite the Nasdaq-100 index notching a record high in mid-January. With our global economy on the rebound, the market is rotating away from high-growth tech stocks toward old economy shares such as airlines, retailers and industrial companies.
However, every decline creates new buying opportunities for patient investors. Therefore, today we’ll take a look at some of the best tech stocks to buy.
The past decade has shown high-growth and well-run tech businesses promise powerful upside potential, as they can quickly boost revenue and earnings. The prospect of investing in tech stocks should therefore appeal to most long-term investors.
However, higher growth potential also implies higher risk. Tech stocks are usually priced for perfect execution. Put another way, they tend to easily plunge if they deliver earnings below expectations.
What are some of the key criteria to consider before betting on tech stocks? I’d say solid fundamentals, capable management, attractive entry points that offer a better margin of safety and a history of bullish trading activity.
With that in mind, here’s a list of seven tech stocks that have the potential to add significant returns to retail portfolios in the second half of the year:
- ACI Worldwide(NASDAQ:ACIW)
- Global X FinTech ETF (NASDAQ:FINX)
- Microsoft (NASDAQ:MSFT)
- Palo Alto Networks (NYSE:PANW)
- Robo Global Robotics and Automation Index ETF (NYSEARCA:ROBO)
- Salesforce.com (NYSE:CRM)
- Twilio (NYSE:TWLO)
These tech stocks could benefit from favorable economic and social tailwinds for rapid growth over the second half of 2021.
Best Tech Stocks to Buy: ACI Worldwide (ACIW)
52-Week range: $23.55 – $43.23
Florida-based ACI Worldwide develops and markets a portfolio of software products primarily focused on facilitating electronic payments. These products handle payment transactions for retail banking clients, merchants, utilities and healthcare providers, among others. The company executes $14 trillion in transactions every day.
ACI Worldwide released first-quarter results in early May. Total revenue was $285 million, down 2% year-over-year (YOY) due to headwinds from the COVID-19 pandemic. Net loss of $2 million in the quarter improved from a net loss of $24 million in the prior-year period. Net loss per diluted share stood at 2 cents. Cash flows from operating activities in the quarter were $70 million, up 22% YOY.
On the results, CEO Odilon Almeida cited, “ACI’s focus on execution continues to pay off, as demonstrated by our first-quarter results. Despite significant and expected pandemic-related headwinds, new contract signings, revenue and adjusted EBITDA were above our expectations in the quarter.”
The group’s software products aim to improve fraud protection and minimize interchange fees billed to merchants when they charge a customer account. ACIW is becoming a key player in the payment value chain.
ACIW stock started the year at $38.68 and hit a 52-week high of $43.23 in mid-February. It is currently trading shy of $40, up about 2% year-to-date (YTD). Forward price-to-earnings (P/E) and price-to-sales (P/S) ratios are 21.14 and 3.62, respectively. Any further decline toward $35 would improve the margin of safety for buy-and-hold investors.
Global X FinTech ETF (FINX)
52-Week Range: $31.78 – $52.87
Expense Ratio: 0.68% per year
Our next choice is an exchange-traded fund (ETF). The Global X FinTech ETF gives access to companies in the financial technology (fintech) sector. Such firms may offer solutions in digital payments, investing, insurance and third-party lending. The ETF began trading in September 2016.
FINX currently has 39 holdings. Sector allocation is as follows: information technology (82.2%), followed by financials, industrials and communication services. In terms of the country breakdown, the U.S. tops the list (more than 55%), followed by Brazil, Australia, the Netherlands and New Zealand.
Although the fund is flat so far in 2021, the return over the past 52 weeks is more than 43%. After a record high in mid-February, the names in the ETF have come under pressure. Interested long-term investors could regard this decline as an opportunity to buy FINX around these levels.
52-week range: $184.01 – $263.19
Dividend yield: 0.87%
Microsoft has become one of the most important tech names of the past decade. its segments include Productivity and Business Processes, Intelligent Cloud and More Personal Computing. It is a coveted member of the Dow Jones Industrial Average.
The tech giant released FY21 Q3 results in late April. Revenue was $41.7 billion, up 19% YOY. Operating income increased 31% to $17 billion. Adjusted net income surged 38% YOY to $14.8 billion. Adjusted earnings per share increased 39% YOY to $1.95. Cash and equivalents at the end of the period was $13.7 billion, up 17% YOY.
“Over a year into the pandemic, digital adoption curves aren’t slowing down. They’re accelerating and it’s just the beginning,” said Satya Nadella, CEO of Microsoft. “We are building the cloud for the next decade, expanding our addressable market and innovating across every layer of the tech stack to help our customers be resilient and transform.”
The Street credits the group’s diversified operations for Microsoft’s strength. Azure has become the world’s second-largest cloud infrastructure platform after Amazon (NASDAQ:AMZN) and its Web Service division. The Office 365 productivity suite and CRM platform Dynamics 365 are stable cash cow operations that offer growth.
MSFT stock ended 2020 at $222.42 and soared to an all-time-high of $263.19 in late April. Since then it has given up some of its recent gains. Nonetheless, the shares are up 17% YTD and the market capitalization (cap) is close to $2 trillion. Forward P/E and P/S ratios are 30.96 and 12.29, respectively.
MSFT stock may not look cheap at first glance, but despite its sheer size, this company is still growing fast. Interested investors should consider buying the dips.
Palo Alto Networks (PANW)
52-week range: $217.48 – $403.00
Santa Clara, California-based Palo Alto Networks is a pure-play cybersecurity vendor. The group sells security appliances, subscriptions and support mainly to enterprises and government entities.
Palo Alto Networks released FY21 Q3 results on May 20. Total revenue grew 24% YOY to $1.1 billion. Adjusted net income increased 22% YOY $139.5 million, or $1.38 per diluted share.
On the results, CEO Nikesh Arora remarked, “The work-from-home shift earlier in the year and recent cybersecurity issues have increased the focus on security. Coupled with good execution, this has driven great strength across our business, with Q3 billings growth accelerating to 27% year over year.”
Increased digitalization over the past year has put cybersecurity in the spotlight. According to MarketsandMarkets, the sector is expected to “grow from USD 152.71 billion in 2018 to USD 248.6 billion by 2023 at a CAGR of 10.2% from 2018 to 2023.”
Palo Alto Networks products are mostly offered as subscription services. Thus they bring in a steady stream of cash flow from customer, a business model Wall Street loves. PANW stock started 2021 at $355.38. It has reached its 52-week ATH $403 on Feb 19 before falling around 20% over the next few weeks. It currently trades at $365, up about 3% YTD. It has gained 65% over the past 12 months.
Current forward P/E and P/S ratios of 51.28 and 8.82 point to a frothy valuation. Although PANW is a growth stock, potential investors might find better value around $350.
Robo Global Robotics and Automation Index ETF (ROBO)
52-Week Range: $41.10 – $72.28
Dividend Yield: 0.19%
Expense Ratio: 0.95% per year
The pandemic has increased the need to automate and digitalize. From automation at home and in the workplace to self-driving cars, the number of robotic units manufactured has been increasing fast. Recent metrics suggest that, “the global market for robots is expected to grow at a compound annual growth rate (CAGR) of around 26 percent to reach just under 210 billion U.S. dollars by 2025.”
Therefore, our next fund could be of interest to readers who are following these trends. The Robo Global Robotics and Automation Index ETF is a widely-followed fund. Since its inception in October 2013, net assets have grown close to $1.9 billion.
ROBO currently has 85 holdings. The top 10 names comprise about 18% of the fund. Brooks Automation (NASDAQ:BRKS), Intuitive Surgical (NASDAQ:ISRG), Hexagon (OTCMKTS:HXGBY) and Nuance Communications (NASDAQ:NUAN) are among the leading names in the roster.
Manufacturing and industrials have the largest sectoral weighting in the fund with close to 16%. They are followed by computing and Artificial Intelligence (14%), information technology (13.37%) and health care (12%) firms. In terms of country allocations, the U.S. heads the list with 48%, followed by Japan an Germany.
Over the past year, ROBO has returned almost 53% and hit an all-time high in mid-February. Since then, it has trimmed about 10% of the gains. Yet, year-to-date, the fund is still up close to 6%. Given the importance of automation, investors could consider allocation some funds to this ETF.
52-Week range: $171.20 – $284.50
San Francisco, California-based Salesforce.com provides enterprise cloud computing solutions, including Sales Cloud, the company’s leading customer relationship management software product. The company offers Service Cloud, Marketing Cloud, Commerce Cloud and the Salesforce Platform, which allows enterprises to build applications. Salesforce is a member of the Dow Jones Industrial Average.
The group released first-quarter 2022 earnings results in late May. Revenue of $5.96 billion, meant a 23% increase YOY. Net income went up by 370% YOY to $469 million. Diluted earnings per share was 50 cents, compared to 11 cents in the prior-year period. Total cash and marketable securities ended the first quarter at $15.02 billion.
“We had the best first quarter in our company’s history. We believe our Customer 360 platform is proving to be the most relevant technology for companies accelerating out of the pandemic,” said CEO Marc Benioff.
Analysts agree the company has an impressive history of maximizing value from acquired companies. For instance, it recently announced its acquisition of workplace collaboration tool Slack as it competes with Microsoft.
CRM stock tumbled in May, falling to $208.87 before hitting another high of $243.31 at the end of the month. Salesforce’s stock is currently trading around $245 up 9% YTD. It has surged about 40% over the past 12 months.
Forward P/E and P/S ratios stand at 68.97 and 10.07, respectively, making for a frothy valuation by historical standards. So there could be further volatility ahead for CRM shares. However, the stock has significant growth potential. A potential decline toward $235 would improve the margin of safety.
52-Week range: $187.53 – $457.30
Twilio is a communications-platform-as-a-service (CPaaS) company that allows software developers to integrate messaging and communications functionality into applications. The firm’s Programmable Communications Cloud focuses on several use cases including phone calls, SMS and MMS delivery and Programmable Video, which allows developers to embed video functionality into mobile and web applications.
Twilio released first quarter 2021 results in early May. Total revenue was $590 million, up 62% YOY. Adjusted income from operations was $17.3 million, up 184% from $6.1 million in the prior-year quarter. Adjusted net income per diluted share was 5 cents, compared to 6 cents in the previous year. At the end of the quarter, cash and equivalents were $2.33 billion, up from $346 million a year ago.
“We delivered another quarter of outstanding growth in Q1, as companies across industries and around the world continue to turn to Twilio’s customer engagement platform to drive their digital transformation,” said Jeff Lawson, Twilio’s Co-Founder and CEO.
Social distancing measures during the pandemic created a significant demand for Twilio’s services. Its digital services help firms reach their customers, including social media feedback integration, text-based customer service chatbots and app-based loyalty programs.
TWLO stock skyrocketed from its initial public offering (IPO) price of $15 in 2016 to an all time high of $457.30 in February 2021. The stock currently trades at $340.
Twilio isn’t profitable yet, as it still spend heavily for growth. TWLO could therefore be a highly volatile stock in the near term. The P/S ratio stands at 25.74. The recent sell-off makes TWLO stock a solid buy for long-term investors.
On the date of publication, Tezcan Gecgil did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Tezcan Gecgil, Ph.D., has worked in investment management for over two decades in the U.S. and U.K. In addition to formal higher education in the field, she has also completed all 3 levels of the Chartered Market Technician (CMT) examination. Her passion is for options trading based on technical analysis of fundamentally strong companies. She especially enjoys setting up weekly covered calls for income generation.