Opinion: Forget the short-term crazes in the stock market and just buy these 5 blazing fast technology stocks
Looking at the latest headlines, it’s easy to make up a story about short-term investment trends based on your personal taste. Is the chaos in Afghanistan good or bad for defense companies? Will inflation push up oil supplies or miners? What Are the Best Infrastructure Stocks for the Trillion Dollar Spending Account?
But here’s the thing: Tactical investment and market timing is incredibly difficult, no matter how well a story you tell yourself. So why think about things – especially when the S&P 500 index SPX,
continues to set new records every few days, while the ever-dynamic technology sector continues to provide much of that success?
Read: The S&P 500 is heading towards 5,000, UBS says. Here’s the when and how.
Recent stock performance and recent gains in these five companies worth more than $20 billion prove that this sector remains a huge growth center for Wall Street, regardless of the short-term news cycle. So if you’d rather go with proven profits than a quirky game based on your personal interpretation of the headlines, here are five technology stocks to consider for their current growth and long-term potential.
In a modern digital economy, hacking and high-tech risks remain a persistent threat. That creates a constant need for companies like $50 billion security giant Fortinet FTNT,
to perform their services, probably for years to come.
The evidence of this growth trend is not based on a hysterical headline about data breaches, but rather through tangible profit and revenue growth. Fortinet’s second quarter profit on July 29 characterized by a 30% year-over-year sales increase and record-free cash flow. In addition, product sales exploded 41% thanks to what is seen as a new data center upgrade cycle – meaning these installed products will pay off later through recurring service and maintenance revenue.
Fortinet has been around since the time of the dotcom and is sometimes overlooked by younger and more volatile cyber players that are attractive in the short term. But this isn’t a sleepy legacy tech stock; it has a 12-month return of over 140% thanks to impressive fundamentals and the long-term megatrend of cybersecurity growth. In fact, those gains make it the best-performing technology stocks in the S&P 500 over the past 12 months.
And with $3.3 billion in cash on the books and more than 1,000 patents issued or pending, this isn’t a technology stock that’s going to be easily disrupted by some of those cyber startups that could also make flashy headlines.
This $560 billion chipmaker powerhouse is one of Wall Street’s greatest success stories. Shares of Nvidia have risen more than 1,300% in the past five years. Momentum hasn’t waned much lately, with gains over 70% in the past 12 months.
That’s because the fundamentals are just too good to skip. In NVDA from Nvidia,
In the second quarter earnings report, it reported better-than-expected revenue growth of 68% year-over-year to a record $6.51 billion on the top line. Earnings rose even more, with an 89% year-over-year growth rate that also exceeded analyst estimates.
This comes on the heels of another sales record in the first quarter report — an impressive feat despite supply chain disruptions and chip shortages that could keep Nvidia from satisfying the market’s full appetite.
Looking Ahead, Nvidia Still Suffers From Antitrust Review Of Its $40 Billion Acquisition Plan for Arm Ltd., a major step that could bolster this technology share as the world’s leading artificial intelligence company. It all adds up to a massive growth story that has proven sustainable regardless of the broader headlines or economic cycles.
Read: Nvidia’s ARM acquisition has stalled and there’s a deadline with over a billion dollars at stake
Shares in this mobile payments giant, founded and run by Jack Dorsey, are up 2.100% over the past five years and continue to outperform with gains of around 70% in the past 12 months.
And why shouldn’t investors love Square’s SQ,
stock? The most recent earnings showed a thriving ecosystem, split roughly evenly between the point-of-sales technology and the Cash App money transfer tool that counted 40 million transaction-active customers. Sales set a record close to $4.7 billion, more than double the previous year, thanks in large part to this rapid adoption.
Earnings have moved dramatically into positive territory as a result, with earnings of 66 cents a share – more than triple the 18 cents a year ago and a sign that this is not a loss-making company seeking scale, but rather real profit-generating venture.
The icing on the cake: Square remains one of the top seven holdings in Cathie Wood’s flagship ARK Investment Fund, the Ark Innovation ETF ARKK,
which currently has 4% of its $25 billion in assets in stock. That will provide continued buzz and buying pressure to support this stock’s already impressive run.
High-tech sensor and analytics company Trimble TRMB,
isn’t exactly a high-profile tech stock, but with a market cap of about $24 billion and nearly $4 billion in annual revenue, this isn’t a money-burning startup either. In fact, it is a leader in geospatial mapping and tracking, with deep relationships with industries such as energy, agriculture, transportation and defense.
The potential of real-time tracking and GPS-related applications is huge, and recent earnings show this. Trimble just reported record turnover in the second quarter with a 29% year-over-year growth rate, delivering 38% earnings growth and record operating cash flow. Looking ahead, Wall Street expects Trimble to expand sales by 10% over the next year.
Speaking of Wall Street, investors were generally quite bullish on the stock, based on gains of more than 230% from spring 2020 lows and gains of more than 40% year-to-date in 2021.
Admittedly, Trimble is a quirky technical stock that doesn’t have the sheer scale or appeal that some traders like. But high-tech mapping and geolocation applications are becoming increasingly important for businesses of all sizes – and the long-term potential of this high-flying tech stock is real.
Zebra Technologies ZBRA,
is a mobile sensor and analytics company that offers tracking technologies, from the old-fashioned striped barcodes that give birth to its name, to interactive kiosks and near-field sensor applications. Anyone who has ordered takeout from a touch screen kiosk or entered a tracking code to see where a package is will immediately understand the consumer-facing applications of this technology, but the real inventory opportunities come from companies with a view to inventory productivity from the management or staff.
This potential is proven by the latest Zebra Revenue, with sales growth of 44%. That’s impressive enough, but even more significant is the fact that net profit is up a whopping 119% year-over-year.
Zebra quickly rolls up related tech players to future-proof his company as well. The latest notable deals include the $290 million acquisition of Get Robotics in July and one for AI and asset intelligence company antuit.ai just this week. This comes on the heels of machine vision deals for Adaptive Vision in May and Cortexica Vision Systems in late 2019, as well as the acquisition of analytics and machine learning startup Profitech in 2019.
These deals cost money, of course, but they really make Zebra evolve into a 21st-century business analytics company — quite a lucrative niche, if its plans come true. And based on the fact that stocks have doubled in the past 12 months and continue to hit new all-time highs, Wall Street seems optimistic that Zebra will outperform.
Jeff Reeves is a MarketWatch columnist. He does not own any of the shares mentioned in this article.
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