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Wall Street has sold investors on the idea that they should start with “micro” analysis — the idea that they should make investment decisions by comparing things like price/earnings ratios, income statements or other company details.
But I do the opposite; I start with the “macro” analysis.
I look for big-picture trends that drive huge, multiyear moves in entire sectors of the market.
I’m talking about trends that can spin off dozens of triple- and even quadruple-digit gains in just a few years.
Catching just one of these trends — at the right time — can help anyone accumulate enough capital to finance their dreams and to provide themselves with an enviable retirement…
When investors use the global macro strategy, they identify investment opportunities from a broad, global, top-down perspective, rather than by examining stocks one by one (a micro, bottom-up perspective).
The rapid evolution of technology is one of the most powerful megatrends to hit the market in our lifetime, and today, I want to examine my Top Five Tech Stocks for 2022 — and beyond. Most of these companies have a hand in the 5G rollout, but one fortifies the roaring travel comeback.
Let’s get started…
Top Tech Stock for 2022 No. 1: LM Ericsson (ERIC)
Even though 5G seems like old news, the technology is forming a tsunami so profitable that, according to Grand View Research, it could explode in size to nearly half a trillion dollars by 2027. That level of spending would represent a staggering compound growth rate of 106% per year between now and then.
And LM Ericsson (NASDAQ:ERIC) is in the right place at the right time… with the right products. The company is a powerhouse that provides a broad range of 5G hardware, solutions and services.
Because of its unique suite of 5G capabilities, the company has become a clear 5G leader. It powers more than half of the 169 live 5G networks worldwide.
To boot, Ericsson is dethroning the current leading horse in the race to deploy 5G technology worldwide: the Chinese tech company Huawei Technologies.
If you haven’t heard of Huawei, here’s a brief synopsis:
The company is the world’s largest telecom equipment provider and holds a leadership role in many facets of the 5G market, but there’s a hitch. The U.S. government distrusts Huawei, and so do several other nations around the world.
The company has become a corporate pariah in the United States because of its alleged spying activities on behalf of the Chinese government. Federal authorities feared Huawei was functioning as a kind of Trojan horse for Chinese intelligence.
Therefore, various U.S. government entities have taken decisive steps to halt Huawei’s expansion within our telecommunications network… especially the 5G portion of that network. Many overseas governments and corporations have followed suit; therefore, as Huawei loses both prestige and contracts, Ericsson is gaining both.
Which puts it in the perfect position to emerge victorious during the incoming multibillion-dollar 5G tsunami over the next few years.
Top Tech Stock for 2022 No. 2: Infinera Corp. (INFN)
Huawei Technologies is certainly feeling the heat, considering the next stock on my list is also a direct competitor.
The first and most important fact to know about Infinera Corp. (NASDAQ:INFN), a Silicon Valley-based optical equipment manufacturer, is that it operates in a segment of the telecom equipment market that Huawei has dominated for several years.
Infinera’s No. 2 spot in the U.S. is the second-most important fact to know about this company. Here’s why…
In a world where no one cared about the “Made in China” aspect of product sourcing, Infinera was a solid but smallish player. Its market cap, as of mid-2021, is just $1.9 billion — or less than one-fourth the size of Ciena Corp. (NYSE:CIEN), a Maryland-based, industry-leading provider of hardware, software and services that optimize the performance and/or efficiency of communications networks.
But in the new world of “Not Made in China,” or NMIC as I call it, Infinera has the potential to gain a much higher profile. Here in the States, Infinera could become part of a de facto duopoly with Ciena, in which it becomes the “second” or “redundant” supplier.
No major companies want to rely on a single supplier of critical equipment if they can avoid it. So if U.S. telecoms are in the process of giving Huawei the boot, they will likely look to access one or more replacements — and Infinera is an obvious choice.
Infinera is one of only two companies that can provide next-generation 800G solutions, which is a state-of-the-art technology that can process and transport more capacity than has been previously possible over a single optical channel or wavelength — up to 800 billion bits per second. In fact, 800G quadruples the wavelength capacity of typical networks.
Capacity enhancements of this magnitude are essential for any telecom carrier or other network operator that hopes to accommodate the soaring volumes of data that 5G technology will send through networks.
As Infinera ramps up its 800G product deliveries, its gross margins and earnings should grow significantly.
Top Tech Stock for 2022 No. 3: Akamai Technologies (AKAM)
By reputation, Akamai Technologies (NASDAQ:AKAM) is the world’s premier content delivery network (CDN) provider. But behind the scenes, it is becoming one of the world’s leading cloud-security firms…
In effect, Akamai is a fast-growing cybersecurity company in the guise of a slow-but-steadily growing CDN. Already, Akamai has become the market leader in several areas, including DDoS prevention, web app firewalls and bot management. A distributed denial-of-service (DDoS) attack uses bots to disrupt the normal traffic of a targeted server, service or network by overwhelming the target or its surrounding infrastructure with a flood of internet traffic.
But in order to maximize this large-scale opportunity, Akamai continues to develop new security products and product enhancements that can garner even greater demand. Some of these “beta phase” products are truly remarkable.
Based on the positive demand trends Akamai is observing, the company believes its cloud security division can grow 20% per year over the next three to four years. If it accomplishes that feat, Akamai’s annual adjusted EPS could top $7 by 2023 and $8 by 2024.
For perspective, let’s ignore Akamai’s $2 billion of CDN revenues and pretend that the company’s only revenue comes from its cloud-security business.
Based on this hypothetical, Akamai stock would be trading for 14 times revenue, which would still be less than one-fourth the valuation of Zscaler and less than one-eighth the valuation of Cloudflare!
Akamai has embarked on a new trajectory of long-term growth — growth that the 5G rollout could accelerate faster than most investors currently expect.
Top Tech Stock for 2022 No. 4: Sabre Corp. (SABR)
We’re pivoting away from the 5G rollout with our next pick, but that doesn’t mean this stock isn’t a titan within its own sector.
Travel has experienced tremendous trepidation over the last few years, a victim of a vicious cycle of severe restrictions and gradual easing. However, “it is always darkest before the dawn,” and travel is now entering its proverbial dawn.
My technology pick in this space is Sabre Corp. (NASDAQ:SABR), one of the travel industry’s “Big 3” global distributions systems (GDS). (Amadeus IT Group (OTCMKTS:AMADY) and Travelport are the other two. Together, these three companies make up 97% of all travel bookings worldwide.)
More than 400 airlines and over 1 million hotels use the Sabre system to process travel bookings. Every major travel website also uses Sabre. The company’s client list is a “who’s who” of the travel industry, including Kayak, CheapFlights, TripAdvisor (NASDAQ:TRIP), Hilton Hotels (NYSE:HLT), Marriott International (NASDAQ:MAR) and many more. In all, Sabre’s system processes 2.5 million bookings every minute.
Sabre generates its revenues from the volume of transactions it processes, not the dollar value of those transactions. So when travel activity increases, Sabre’s revenues also increase. Therefore, when the Covid-19 pandemic torpedoed travel activity, Sabre’s revenues tumbled. The company’s second-quarter 2020 revenues collapsed more than 90% year-over-year. Not surprisingly, Sabre’s share price also collapsed.
But the aforementioned vicious cycle is becoming a virtuous cycle of rising travel activity… and rising Sabre revenues. And this favorable trend will continue to strengthen in 2022 and beyond.
Top Tech Stock for 2022 No. 5: Corning Inc. (GLW)
Last on our list is Corning (NYSE:GLW). For more than 170 years, the Corning name has been synonymous with best-of-breed glass products. In 1879, a 32-year-old Thomas Edison approached Corning with the concept of a lightbulb. This invention would require a specialized glass that would be stronger than typical window glass but could also encase delicate filaments inside the bulb. Corning fulfilled the mission and became Edison’s sole supplier.
Over the ensuing decades, Corning produced a variety of glass-based marvels, dominating one industry after another. In the 1960s, for example, Corning was producing 100% of the world’s TV screen glass.
More recently, thanks to Corning’s market-leading position in fiber-optic cable, the company became a stock market darling during the dot com bubble of 1999 – 2000. And it was one of the many dot bomb busts due to worldwide installations of fiber collapsing by 2002.
But Corning is no longer the one-trick pony company it was when it generated almost three-quarters of its revenues from fiber optics. Today, the company operates five different business segments — each of which is beginning to benefit from powerful tailwinds:
- Optical Communications — accounting for 33% of Corning’s 2020 sales and 39% of its net income.
- Display Technologies — accounting for 29% of sales and 23% of net income.
- Specialty Materials — accounting for 17% of sales and 20% of net income.
- Environmental Technologies — accounting for 12% of sales and 11% of net income.
- Life Sciences — accounting for 9% of sales and 7% of net income.
Impressively, all five segments generated double-digit, year-over-year revenue growth during the first quarter of 2021.
These results are beautifying both Corning’s income statement and balance sheet. As annual revenues and earnings per share approach record-high levels, the company’s net debt is ticking lower. For four straight quarters, the company has trimmed its debt load.
These positive trends will likely gain momentum over the coming year, thanks partly to the tailwinds that are beginning to fill Corning’s sales.
The worldwide 5G buildout certainly tops the list of tailwinds, as this one benefits Corning’s largest segment, Optical Communications. That’s the segment that provides optical fiber and related connectivity solutions to telcos, data centers and other enterprises.
As the global 5G buildout proceeds, so too will demand for Corning’s fiber-optic cable and components. This substantial source of new demand could become shockingly large.
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Editor, Smart Money