Investors looking for safe returns tend to buy dividend stocks… or even bonds. But for investors looking for market-beating returns that can greatly increase their wealth, they turn to tech stocks.
That’s because technology companies are continually bringing new ideas to fruition, and that means rapid earnings growth, prodigious cash flow from rising revenue growth, and great profit margins. While no company can grow infinitely, tech companies tend to come up with new and better products, allowing older and more obsolete ideas to die out. The tech sector is a wide and diverse one, covering many facets.
While tech companies appear risky because they have more volatility than other types of stocks, over time, that extra volatility tends to play out for investors. The trick is to find great technology companies with staying power over time that can continue to be growth stocks for years. That’s why we’ve come up with the best tech stocks to buy now.
Best Tech Stock #1: Apple (AAPL)
The consumer technology giant is no stranger to any “best of” list. The company is simply a living legend. Over the years it has innovated in personal computing, smartphone technology, and even owns the world’s highest-profit-margin music store with iTunes.
- Investor Who Predicted 2008 Crash: “The Mother of All Crashes is Coming”
With consumer prices showing no signs of slowing down, is the U.S. economy heading for another economic meltdown?
Volatility has risen in recent months and warning lights are beginning to appear on economists' radar screens. Keith Kaplan, CEO of TradeSmith, has prepared a new presentation for investors that identifies fundamental trends that may lead to both wealth creation...or destruction.
It’s no wonder you can find shares in just about any mutual fund or ETF. But that’s for a reason.
So, yes, it’s a pricey company. And it carries a market cap of nearly $1.5 trillion right now. But this is a company that’s likely going to continue being a long-term winner. Despite having to pay for a lot of costly manufacturing for its physical goods, the company has a 21 percent profit margin and operating margins of 24 percent. That’s closer to a purely-tech play like a software company than a firm best known for making smartphones.
Earnings and revenue growth have stalled out in recent quarters, putting it ahead of some of the dire headlines about the economy right now. But that’s what makes it a time to buy—a fact many traders have already recognized.
Consumers will still download music from the store. And they’ll still need to upgrade their iPhones on a regular basis. And with newer technologies and services in television and screening coming along, there’s still a lot of profit opportunity ahead. The stock returns here will likely continue to beat the market.
Shares even pay a dividend yield, albeit a low one just under 1 percent. But given how much the shares move in a given year, and the company’s already strong record of dividend growth and share buybacks, today’s investors are likely to continue to see excellent returns buying and holding this long-term play.
Best Tech Stock #2: Alphabet (GOOG)
The parent company of search engine giant Google has been a relative underperformer in the big tech space. While it’s impossible to know when that will change, it does mean Google is a relative value in the tech space right now.
Google dominates online advertising revenue, having both a competitive advantage and an absolute advantage. The company’s performance and brand advertising services are second to none. But it also offers cloud and hardware services, all of which support a growing integration of digital goods and services.
Google is still sporting double-digit growth with a 13.3 percent increase in revenues in the past year to over $166 billion. It’s also impressive that the company has nearly $100 billion in net cash against its $1 trillion market cap, making for a relatively strong balance sheet play as well. That means shares are a reasonable bargain trading at under 30 times forward earnings.
Best Tech Stock #3: Microsoft (MSFT)
Microsoft is a tech giant to say the least. If you’re still thinking of it as a provider of operating systems for computers, you’re only getting a fraction of the picture.
The company is heavily invested in a number of next-generation technologies, to say nothing of having its own video game console (the Xbox), video communications (Skype) and social media site (LinkedIn).
What’s most impressive is the company’s growth in cloud computing services. That’s a huge potential market, and Microsoft has quickly built out its functionality there to compete with the likes of Google and Amazon.
All in all, this makes for a fascinating tech conglomerate that’s focused on being the best or second best in a few areas that have high revenue potential. Most investors have no clue that video game sales exceed box office sales for moves—and that first occurred in 2018, well before the pandemic.
Microsoft has been a fast adaptor to the times, increasing tools and functionality to the work-from-home workplace. This is a company likely to benefit from accelerating trends in technology in the years to come. That means this behemoth can get even bigger.
And right now, shares also pay a 1 percent dividend yield. It isn’t much compared to the share price, but over the past few years the company has been consistently increasing that payout.
Best Tech Stock #4: Nvidia (NVDA)
Many of today’s gadgets and devices are powered by graphics processors. Faster than traditional computer chips, these processors started out for powering video and computer games, but have now been integrated in cryptocurrency mining operations and smart technologies like self-driving cars due to their superior speed.
That’s a big boon for shares of Nvidia, the leading graphics processing company in the space. While shares took a dive after cryptocurrency prices collapsed in late 2017, steadily increasing demand in other areas have allowed the company to continue to thrive.
Revenue growth at the company rose by nearly 39 percent in the past year, with earnings rising 133 percent. And despite the high costs of manufacturing, the company managed an impressive 28 percent profit margin. All in all, shares are trading at a reasonable price for that kind of growth.
There’s a lot to like about the company—it’s in a great growth space with some long-term tailwinds to move shares even higher from their current levels over the next few years. That even includes some technologies that are still on the drawing board today.
Best Tech Stock #5: Facebook (FB)
Shares of social media giant Facebook have broken out of a range to hit new all-time highs.
However, shares rarely move in a straight line, as there are often controversies that knock shares back temporarily. Two years ago, it was privacy concerns on the network. Now, it’s an ad boycott from major companies, given the company’s lackluster response to limiting speech on the platform.
Even with the recent ad boycott from major companies, we still see Facebook as a long-term winner. The company dominates the social media space in terms of time spent on site, meaning that advertisers will still continue to flock to the site, even if major names are stepping back right now.
It’s one of the dominant companies of the modern internet era, yet it’s lagged other big names that dominate as well such as Google. That gives the social media firm a solid relative valuation. Facebook’s “network effect” makes it a cornerstone of the Internet, and the company will find plenty of ways to continue monetizing its site.
Unlike many established tech names, Facebook doesn’t pay a dividend yet. That policy may change in the next few years, given the company’s declining growth of new subscribers. All told, this is a company with some short-term headwinds that has some excellent reasons to belong in a long-term portfolio. Take advantage of this stock market bargain now.
Best Tech Stock #6: Netflix (NFLX)
One of the best performing stocks of the past decade, Netflix shows no signs of slowing down. That’s in spite of rising competition from other streaming services. Even with the rise of so many competitors in the past few years, Netflix has over 167 million paid subscribers in 190 different countries.
The company has shown revenue growth of 28 percent in the past year, and earnings growth of 106 percent in the past year. It’s no wonder shares are trading at all-time highs and are up nearly 30 percent in the past year.
In the past, the company used large debt offerings to fund its original programming and other growth needs. Now that the growth is there, the company’s balance sheet has improved, with $5 billion in cash and $15 billion in debt. Against the company’s market capitalization of over $220 billion, the company appears to have successfully grown out of its debt problems from the past. This is yet another growth name with some powerful value trends behind it.
Best Tech Stock #7: Adobe (ADBE)
Best known for its Acrobat Reader for viewing PDF files, Adobe has greatly expanded in recent years. The company has a digital media segment, a creative cloud and digital experience segment to meet various business needs.
This includes everything from web application and development to publishing and social marketing and web analytics. That’s a powerful suite of infrastructure needed for the economy’s current challenges.
Products can be offered as one-off sales, or on a recurring, subscription revenue basis, which provides consistent income to the company.
And as a major established player already, the company is both growing quickly and profitable. Earnings surged 73 percent in the past year. That’s tremendous growth. And the company sports a 31 percent profit margin. While shares may sound pricey at 45 times forward earnings, they’re not that expensive relative to the current and potential growth the company has been sporting.
Best Tech Stock #8: Qualcomm (QCOM)
This wireless chip maker is a leader in the 5G boom. That’s because it’s the industry leader for wireless chips, and the company has a massive hoard of patents, and they’re constantly investing their cash flow in new ones.
Qualcomm earns a profit by leasing out their patents, letting someone else take on the manufacturing risks. In exchange, they get a royalty payment for every sale made.
In other words, no matter which company sells the most 5G smartphones, Qualcomm is likely to get a cut of the action. That makes it a great play in just about any market. That also makes it the top tech play for the 5G revolution.
Because of the company’s operating model, it’s also able to pay out a generous dividend, which can pay investors to wait for the 5G network to reach its full potential. It’s harder to find a better mix of growth and income on the market in this space, and shares deserve a higher price target than where they’re currently trading.
Best Tech Stock #9: Amazon (AMZN)
The online retail giant has already benefitted from many stay-at-home trends this year, and we see those trends continuing in the coming year. This top tech stock seems to perform well no matter what consumer spending trends occur.
But that’s only a fraction of Amazon’s business. Its cloud services division, known as Amazon Web Services or AWS, is a huge driver of revenues for the company, helping improve its net income and bringing the company to a (mostly) steady level of profitability after years of inconsistent profitability following a strategy of “getting big quickly.”
Whatever trends occur in technology in the future, Amazon already stands as a play on those trends, and with a consumer bent second only to Apple. That’s why shares, while pricey and at all-time highs, are still a worthwhile buy here. It’s very likely that the company’s best growth days are still ahead.
Best Tech Stock #10: Cisco Systems (CSCO)
No matter how complex technology gets, it will always need an infrastructure to play out. For Internet Protocol-based tools, that requires items like routers and switches. In this space, Cisco Systems is the dominant player, with products designed to provide networking capabilities as well as transmit and store data. The company’s growth into security products provides a key service that can also provide recurring revenue, making it more than just a simple “brick and mortar” play on the communications equipment industry.
It’s one of the few names that hasn’t tracked tech as a whole to all-time highs right now, making its stock price a solid buy for investors today. In fact, shares are down 20 percent in the past year. The reason? The company’s latest earnings report for the first quarter showed a mid-single-digit drop in both earnings and revenue. But with increased connectivity and a rise of connected devices with Internet of Things (IoT) capability, this is a relative value in a longer-term growth space.
Best of all, shares pay a 3.2 percent dividend at current prices. Over the past several years, the company has gradually upped the dividend, so long-term buyers are likely to get a growing source of income from this play in the years ahead, in addition to the upside potential in shares.
What is the Number 1 Tech Stock for 2020?
We’ve identified 10 on this list, but we lean towards Apple. It has the right mix of technology, great leadership, a strong brand, and continued growth via existing and new markets. While this big, established name may not be as exciting as buying the latest IPO, it’s likely to continue to deliver profits in the years ahead. It’s a good starting place for investing your money in the tech space.
What should I look for in a tech stock?
The technology sector is a pretty wide one, with everything from the manufacturing of physical goods to software that can be downloaded without the need for a physical product. If there was a single category to drill down on, it would be this: Growth.
Ideally, the best tech stock is one that’s growing, is in a growing sector, and has other trends that favor the stock over its peers and other sectors of the market.
That’s why our list of the best tech stocks includes so many industry-leaders instead of penny stocks. They may already be big, but they have some advantages from being established that can continue to allow them to grow. Some smaller players may grow better, and are also attractive, as they may get bought out by bigger companies later in their development.
But some of today’s growth names can be duds, and avoiding losses is a key part of investing. That’s also why we’re targeting individual stocks, rather than an ETF.
Why invest in tech stocks?
Simply put, an investment in the top tech companies can turn a small grubstake into your own personal gold mine. Technology companies are the most nimble and responsive to change on the market, usually in an attempt to gobble up market share. So whether there’s a recession or a trade war, technology companies bounce back quickly and strongly to keep the growth going.
Over time, that compounding growth should translate into a higher share price—and likely at a return that beats the average return of some Wall Street analyst. That’s why technology stocks are a key to any portfolio. Happy investing!