Reopening stocks have become choppy amidst a new surge in the Covid-19 delta variant, and it seems like tech stocks are back on the upswing. Along with waning worries about rising inflation, the tech-heavy Nasdaq-100 could easily outpace other indices in the coming months as investors rotate toward growthy tech stocks.
However, despite their long-term growth potential, many tech stocks are currently lagging behind the broader market in terms of year-to-date (YTD) returns. Therefore, today we’d like to take a close look at some of the best tech stocks later in the summer.
As innovation fuels performance to perhaps a higher degree than large-scale investing or changing market tastes, tech stocks constitute the most dynamic of all stock categories on Wall Street. The right idea at the right time has the potential to turn an innovation into a household name. Tech industries are therefore thriving, with a rate of growth that soars day by day.
However, higher potential for lucrative returns also implies higher risk. When great ideas are executed poorly, or a good idea is outshined by a better one, a once-promising stock may sink overnight. With that information, here are seven tech stocks that should gain traction in the second half of 2021.
- ARK Autonomous Technology & Robotics ETF (BATS:ARKQ)
- Fiserv (NASDAQ:FISV)
- Global Payments (NYSE:GPN)
- iShares Robotics and Artificial Intelligence Multisector ETF (NYSEARCA:IRBO)
- MercadoLibre (NASDAQ:MELI)
- Micron Technology (NASDAQ:MU)
- Palo Alto Networks (NYSE:PANW)
Tech Stocks: ARK Autonomous Technology & Robotics ETF (ARKQ)
52-Week Range: $52.07 – $101.11
Expense Ratio: 0.75%, or $75 per $10,000 invested per year
We start today’s discussion with an exchange-traded fund (ETF). The ARK Autonomous Technology & Robotics ETF is made up of companies that focus on robotics and automation, autonomous transportation, energy storage and 3D printing, as well as space exploration.
ARKQ, an actively managed fund, usually including between 30 and 50 holdings. It is one of the leading ETFs managed by Cathie Wood. The top ten account for approximately 55% of total net assets, close to $3.1 billion.
ARKQ’s top five companies are the electric vehicle (EV) darling Tesla (NASDAQ:TSLA); Chinese e-commerce giant JD.com (NASDAQ:JD); Kratos Defense and Security Solutions (NASDAQ:KTOS); Trimble (NASDAQ:TRMB), which has progressed from a GPS company to an integrated work process platform; and Google parent company Alphabet (NASDAQ:GOOG, NASADQ:GOOGL).
YTD, the fund is up about 5% and hit an all-time high (ATH) in mid-February. Potential buyers, who want to focus on innovative industrial firms with growth potential, should do further due diligence on the fund.
52-week range: $92.15–$127.34
Brookfield, Wisconsin-based Fiserv is a leading provider of core processing and complementary services for small and midsize U.S. banks and credit unions. Fiserv also provides payment processing services for merchants via its merger with First Data in 2019.
Fiserv released Q1 financial results in late April. Total revenue remained flat at $3.76 billion compared to the prior-year period. Adjusted net income stood at $797 million, representing a 17% YOY increase. Adjusted earnings per share of $1.17 grew 18% YOY. Free cash flow soared 8% to $821 million.
CEO Frank Bisignano cited, “With a strong first quarter, we are raising the lower end of our outlook for both internal revenue growth and adjusted earnings per share, as we see broad economic conditions improve and our ongoing focus on serving clients leads to growth.”
Fiserv claims to reach all U.S. households, with 10,000 financial institution clients and 6 million merchants across the globe. Over 60% of its revenue is derived from Payments and Fintech segments that help banks process digital payments and manage their loan and deposit accounts. The remainder comes from payment processing solutions offered at the retail level.
FISV stock currently hovers slightly around $110 territory, down 2.5% YTD. Fiserv forecasts revenue growth of 9% to 12% and adjusted earnings per share of $5.35 to $5.50 for 2021. This implies a 21% YOY increase in earnings growth.
FISV stock is currently trading at slightly over 20x forward earnings and 5x sales, not expensive for a company that grew revenue over 40% last year. The current dip in stock price could therefore be a valuable opportunity for interested investors.
Tech Stocks: Global Payments (GPN)
52-week range: $153.33– $220.81
Dividend yield: 0.42%
Atlanta, Georgia-based Global Payments is a leading provider of payment processing and software solutions, focusing mainly on serving small and midsize merchants.
Global Payments released its Q1 2021 financials in early May. Revenue grew by almost 5% YOY to $1.81 billion. Adjusted net income soared 14% YOY to $541 million. And adjusted earnings per share rose 15% to $1.82, compared to $1.58 in the prior year quarter. Cash and equivalents ended the quarter at $2.07 billion.
CEO Jeff Sloan remarked, “We returned to growth in the first quarter and delivered the fastest rate of sequential expansion across our markets since the end of 2019. We also continued to deliver on our strategic priorities with today’s announcements of our agreements to acquire Zego, a leading property technology company with a comprehensive resident management software and payments platform, and Worldline’s PAYONE Austrian POS acquiring business.”
Global Payments has made consistent investments in technology to capitalize on thriving prospects in the digital payments space. The company has gained significant momentum thanks to acquisitions and collaborations that boost its technology-enabled strategy. Its collaboration with Alphabet highlights its efforts to expand its digital offerings. In addition, its most recent acquisition of Zego aims to bolster its footprint in the real estate industry.
GPN stock hovers around $192, down almost 11% YTD. Forward P/E and P/S ratios stand at 24 and 7.7, respectively.
iShares Robotics and Artificial Intelligence Multisector ETF (IRBO)
52-Week Range: $30.72 – $52.10
Dividend Yield: 0.6%
Expense Ratio: 0.47%
The iShares Robotics and Artificial Intelligence ETF provides exposure to global businesses that could benefit from developments in robotics and AI. It started trading in June 2018.
IRBO, which has 107 holdings, tracks the NYSE FactSet Global Robotics and Artificial Intelligence Index. The top 10 firms comprise around 18% of net assets of more than $432 million.
In terms of sectors breakdown, information technology (58.53%) has the highest weighting, followed by communication (21.6%), industrials (10.79%), and consumer discretionary (6.99%).
Close to 54% of the companies come from the U.S. Next in line are China (14.78%), Japan (9.86%), France (4.46%), and South Korea (3.93%), among others.
IRBO’s top 10 companies include China-based online media, search and gaming group Sohu.com (NASDAQ:SOHU); Chinese language social media platform Weibo (NASDAQ:WB); Parade Technologies; club based software-as-a-service (SaaS) platform Domo (NASDAQ:DOMO); and Adobe (NASDAQ:ADBE), which is well-known for its creative suite of software products.
So far in the year, IRBO is up around 9% and hit a record high in mid-February. Since then, many of the names in the fund have come under pressure. Firms worldwide are increasingly investing in AI and robotics technologies for smart decision-making, increasing productivity, enhancing customer experiences, and reducing costs. Interested readers could regard this dip as an opportunity to invest in this niche ETF.
Tech Stocks: MercadoLibre (MELI)
52-week range: $959.87–$2020
Argentina-based MercadoLibre is Latin America’s leading e-commerce technology company. The company’s commerce segment includes online marketplaces in more than a dozen Latin American countries. The company’s fintech segment includes payment-processing platform MercadoPago, a mobile wallet platform, credit solutions for buyers/sellers, and asset management platform Mercado Fondo.
MercadoLibre released first-quarter results in early May. Total revenue increased 158% YOY to $1.4 billion on an foreign-exchange-neutral basis. Total payment volume through Mercado Pago soared 129% YOY to $14.7 billion on an FX neutral basis. Net loss was $34 million, resulting in a net loss of 68 cents per share. The company ended the quarter with $863 million in cash and equivalents.
CFO Pedro Arnt remarked, “Our financial results were once again marked by accelerated growth due to strong demand for e-commerce and FinTech services within an improving but still challenging environment.”
MercadoLibre has a booming e-commerce business that continues to grow at a rapid pace. However, it’s Mercado Pago that has been attracting significant investor attention. Payments made via Mercado Pago have skyrocketed over the past few years. The platform generated almost 2 billion transactions, up over 1,000% between 2015 and 2020. Even more exciting is the fact that Mercado Pago is expanding faster when it comes to processing payments outside MercadoLibre’s e-commerce platform.
MELI stock is up 62% in the past 12 months. It currently hovers around $1,610, down around 4% YTD. Latin American payments space promises significant upside potential for investors in the long run. MELI stock is trading at more than 700x forward earnings and 17x sales.
Micron Technology (MU)
52-Week range: $42.25 – $96.96
Micron Technology is a global developer and manufacturer of memory and storage systems for a broad range of applications. The company provides high-performance DRAM, NAND, and NOR memory and storage products through its Micron and Crucial brands.
Micron released third-quarter results on June 30. The company reported a record quarter, with solid demand across almost all end markets. The top line grew 36% YOY to $7.42 billion. Non-GAAP net income was $2.17 billion, an increase of 131% YOY. Diluted EPS came in at $1.88, soaring 129% YOY. Adjusted free cash flow ended the third quarter at $1.52 billion.
“Micron set multiple market and product revenue records in our third quarter and achieved the largest sequential earnings improvement in our history,” said CEO Sanjay Mehrotra. “Micron is in the best position ever to capitalize on the long-term demand trends across the data center, intelligent edge and user devices.”
Investors seem to underestimate the strength of the demand trends for Micron’s products. MU stock hovers around $76, near the price it was trading at the end of 2020. The semiconductor shortage is expected to persist into 2022, leading to significant margin improvement and earnings growth. Given the current demand trends in 5G wireless and cloud servers, along with the stock’s low valuation, MU stock has significant upside potential.
Forward P/E and P/S ratios stand at 7 and 3.4, respectively. Long-term investors interested in a reliable semiconductor name should keep MU stock on their radar.
Tech Stocks: Palo Alto Networks (PANW)
52-week range: $219.34 – $404.05
Cybersecurity heavyweight Palo Alto Networks markets its security appliances, subscriptions and support mainly to enterprises as well as government entities. The pandemic has led to increased digitalization, which has put cybersecurity in the limelight.
Recent metrics by Grand View Research suggest, “The global cyber security market size was valued at USD 167.13 billion in 2020 and is expected to register a CAGR of 10.9% from 2021 to 2028. The growth of the market can be attributed to the growing sophistication of cyberattacks.”
The company issued fiscal year 2021 Q3 results in late May. Revenue increased by 24% YOY to $1.1 billion. Palo Alto Networks has benefitted from higher demand for its firewall software solutions. Adjusted net income grew 22% YOY $139.5 million, or $1.38 per diluted share.
CEO Nikesh Arora cited, “We saw a number of customers make large commitments to Palo Alto Networks across our three major platforms. We are pleased to be raising our guidance for fiscal year 2021 as we see these trends continuing into our fiscal fourth quarter, bolstering our confidence in our pipeline.”
Investors have been pleased with how Palo Alto Networks offers products primarily as subscription services. Such a business model ensures predictable cash flow levels. YTD, PANW stock is up about 12% and saw a record-high in February.
Since then, many cybersecurity firms have come under pressure. Yet, forward P/E and P/S ratios of 54.35 and 9.36 still point to an overextended valuation level. Although PANW is likely to create shareholder value for many more years, interested readers might find better value around $365.
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.