Our analyst’s favorite tech plays

 

Technology is arguably the sexiest, most exciting sector in the market. Technology is behind basically everything in today’s world, and the leading companies in the sector have enjoyed strong gains in recent years.

Technology is involved in every facet of life, but it is ever changing, and only those companies that are able to look ahead and prepare for what is coming next will remain relevant down the road.

Even the strongest companies in any sector are vulnerable to extinction if not able to adapt to current conditions, but this is all the more true in technology, where things can literally change overnight.

Tech stocks are hot, but not without risk. There will always be someone working to build a better mouse trap, and companies can quickly lose their place at the top of the mountain. To successfully invest in tech, you need to find companies that are not only currently market leaders, but have shown the ability to adapt their business models over time. This is a good indication that management has its pulse on the market, and is able and willing to change and adapt.

Here are five such companies.

Amazon.com

Few companies in the tech sector have as good of a story as Amazon.com (AMZN). The company started off as a online book and music retailer, but through the years it has morphed into a retail giant that has literally reshaped the retail landscape. Amazon is the undisputed king of e-commerce, which is ever-growing in its importance. Not only has Amazon managed to turn the retail sector on its head, it also saw the huge opportunity in cloud computing, which is the quickest growing sector within technology, and emerged as a leader in it. Amazon has proven an ability to not only dominate its current markets, but to also spot and move into new areas with perfect timing. AMZN trades at $1,519.18, with an average price target of $1,676.10.

amzn180227

Chart courtesy of www.stockcharts.com

Electronic Arts

Video game maker Electronic Arts (EA) has been a top performer in recent years, and should continue to do well. Video game popularity remains incredibly high, and the rise of online and mobile games has not derailed traditional video games as was once feared. Electronic Arts has grown earnings by 11.3% per annum over the last five years, and looking ahead the company is expected to grow profits by 15.4% annually. Electronic Arts controls some of the biggest video game titles, with Madden, Star Wars Battlefront, and FIFA among its stable of games. Video game enthusiasts are rabid about their games, and each time a new video game console hits the market, game makers like EA receive a new wave of demand for newly released games. The sector remains strong, and leaders like Electronic Arts should do well moving forward. EA trades at $126.65, with an average price target of $135.82.

ea180227

Chart courtesy of www.stockcharts.com

Netflix

Streaming giant Netflix (NFLX) has proven time and again through the years an ability to adapt its business model in order to remain relevant. Not all of its moves have proven successful, but the biggest and by far most successful move it made through the years was to move into original programming. Netflix was a big reason for the rise in “cord-cutting”, but the company knew it needed more than just a big library of movies and shows to maintain subscriber growth as more streaming video providers emerged. By investing in original content, the company has managed to not only maintain subscribers, but continue to grow. Last quarter alone, the company added 8.3 million new subscribers. Almost 2 million of which were in the U.S. Netflix grew profits by 37.4% per annum over the last five years, and looking ahead analysts see that number rising, with forecast average annual earnings growth of 80.9% for the next five years. NFLX trades at $293.07, with an average price target of $254.06.

nflx180227

Chart courtesy of www.stockcharts.com

Facebook

Facebook (FB) has wowed Wall Street since going public back in 2012. The stock has enjoyed a steady rise over the last five years, driven the company’s ability to grow users, and more importantly its ability to monetize its mobile users. Facebook has managed to not only grow users on its namesake Facebook network, but has made very strategic acquisitions through the years such as its purchases of Instagram and WhatsApp, both of which have huge earnings growth potential. Consider that as of the end of 2017, Facebook boasted 2.2 billion active monthly users. With such a huge user base, it is hard to imagine any new social media launch posing a threat to Facebook’s dominance. Earnings are expected to rise by 27.2% per annum over the next five years, which is a figure any company would love to have. FB trades at $182.85,

fb180227

Chart courtesy of www.stockcharts.com

PowerShares QQQ ETF

While I like the thrill of investing in particular tech stocks, my favorite way to play the sector is by buying shares of PowerShares QQQ ETF (QQQ). QQQ is designed to track the overall performance of the tech heavy NASDAQ Composite. Among the top holdings in the exchange-traded fund are Apple (AAPL), Microsoft (MSFT), Amazon.com (AMZN) and Facebook (FB). The four above mentioned stocks combine for round 30% of fund’s total weight. Investing in QQQ gives you good exposure to a wide range of technology companies, so it prospers when the overall economy prospers and technology spending picks up, and it also holds up well even if one or two sectors inside technology run into trouble, since the fund is diversified across the entire technology spectrum. With the overall market near record highs, it is not surprising that QQQ is also just shy of its record high. Given the bullish outlook on the overall economy, the tech sector should continue to rise, and QQQ will rise with it.

qqq180227

Chart courtesy of www.stockcharts.com

Symbols: AMZN EA FB NFLX QQQ
Michael Fowlkes

Michael Fowlkes

Michael Fowlkes is a financial writer who has been with the Fresh Brewed Media family since 2004. Over the course of his tenure with Fresh Brewed Media, he has worn many hats, including portfolio manager, options analyst, and writer. Michael received his undergraduate degree from Virginia Tech in Accounting and got his start in finance working as a stock trader for six years at Chase Investment Counsel in Charlottesville, Va.

You May Also Like