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When many investors consider adding tech stocks to their portfolio, all too often the thought elicits worries of increased volatility, fast-changing markets, and general instability. But not all tech stocks are created equal, and owning a piece of businesses that operate in the lucrative technology segment doesn’t have to be stressful.
So to help point you in the right direction, we asked three top Motley Fool contributors to discuss tech stocks they believe can belong in any portfolio. Read on to see why they chose Corning (NYSE:GLW), Amazon.com (NASDAQ:AMZN), and Facebook (NASDAQ:FB).
This market-beating choice is clear
Steve Symington (Corning): Corning has had a fantastic run lately, with shares of up nearly 50% over the past year as of this writing. But I think any patient, long-term investor can still do well owning shares of the 166-year-old glass technologist.
Corning demonstrated encouraging signs of accelerating growth with its most recent quarterly report last month. As it stands, the company’s largest source of revenue and earnings remains its core display technology business, which primarily includes LCD glass. Though LCD glass prices have persistently declined in recent years, effectively holding back top-line growth there, those declines have moderated 10 straight quarters, and are more than offset by increases in glass volume as Corning works to keep up with robust demand.
Meanwhile, Corning’s optical communications business is thriving, with sales expected to climb in the mid-teens percent this year. And its specialty materials segment should see revenue growth in the high teens this year, helped by strong demand for Corning’s high-margin Gorilla Glass 5 cover glass products.
What’s more, Corning introduced an ambitious capital allocation framework in late 2015. Through it, the company aims to return $12.5 billion to shareholders through dividends and stock repurchases through 2019 (it has already completed $6 billion of that goal), as well as investing $10 billion into sustaining its industry leadership through research, development, and engineering.
Considering Corning stock still trades at a reasonable 15 times forward earnings, offers a healthy 2.2% dividend with room to rise, and plans to continue its ambitious strategic investments in RD&E, I think it’s a shoo-in as a tech stock that can find a home in virtually any portfolio.
Amazon.com: 3 flavors of disruption
Anders Bylund (Amazon.com): Yes, Amazon.com is a true-blue tech stock. If you disagree, have another look at the recently published fourth-quarter report. There, the online retailer’s Amazon Web Services segment, or AWS, contributed a modest 8% of the company’s total sales. Not impressed? Well, the same division also pulled in 43% of Amazon’s operating income. This was done while AWS sales jumped 47% higher year over year, far ahead of the company’s 22% overall revenue growth rate.
I haven’t done anything more than explaining why Amazon belongs in this discussion, and the investment thesis is already writing itself.
Amazon is not only disrupting the retail industry these days, but is also a leading provider of cloud computing tools and runs a global network of digital video services.
How often do you see a single company disrupting three clearly distinct industries at the same time?
How often do these multimarket disruptors show 22% annual sales growth on top of $136 billion in trailing revenues?
And if you look past an inflated price-to-earnings ratio, which also could be described as an effective tax-limiting strategy, Amazon shares trade at a perfectly reasonable 37 times trailing free cash flows. Given the growth trends you saw above, that’s not expensive at all.
Nowadays, Amazon’s stock offers something for almost every type of investor — high growth, a large and stable financial foundation, several flavors of business disruption, and more. The only good reason not to own Amazon shares today would be if you’re looking for a generous dividend policy. Income investors will have to look elsewhere, as Amazon prefers to invest its excess cash flows in even more long-term growth.
For everyone else, this is a ticker you should get to know better. You probably want some exposure Amazon in your investment portfolio.
Follow the users
Demitri Kalogeropoulos (Facebook): CEO Mark Zuckerberg recently summarized his company’s latest performance in some laughably understated terms. “Our business did well in 2016,” he said about an operation whose revenue rocketed higher by 54% as net income almost tripled to over $10 billion.
Facebook achieved some incredible milestones in the past year, including a daily active user base that soared to 1.23 billion from 1 billion. The social media king extracted far more money from its growing legion of social media fans, too. Average revenue per user hit $20 last quarter in the U.S. market, up from $14 at the end of 2015.
That incredible pace of growth can’t continue forever. In fact, Zuckerberg and his team recently warned investors to expect an advertising slowdown over the next few quarters since the company is approaching the point where it can’t goose results by simply increasing the volume of ads shown on users’ feeds.
Yet Facebook remains one of the best places for marketers to go to reach their online audience — whether we’re talking about a massive enterprise launching a global product or a small business targeting a local following. And, while Facebook can’t show many more ads in the service without hurting the user experience, there’s plenty of room to boost engagement and advertising effectiveness as video grows to encompass more of the browsing experience over the next few years.