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As we head into 2016’s final quarter, we’ve detailed the three best tech stocks to buy now.
When looking for the top tech stocks, we look for companies that deliver must-have products and services.
If a product is viewed as essential, it will keep flying off the shelves no matter what type of market we’re in. If the company is well-managed – and Money Morning‘s recommendations for top tech stocks to buy now all are – it will continue to grow revenue and margins.
Worried about recent market highs and the ability of stocks to keep climbing? The “must-have” products will keep on selling no matter what the market does. So even if you buy at what looks like a “peak,” you won’t have to worry about the stock crashing.
Here are our recommendations for the best tech stocks to buy now.
Top Tech Stocks to Buy Now No. 1: Apple Inc.
Apple Inc. (Nasdaq: AAPL) is one of our best tech stocks to buy now. In fact, it has been among Money Morning‘s top tech stock recommendations throughout 2016. Investors who bought at the beginning of the year have seen gains of 9% year to date. Apple shares have risen more than 49% over the past three years.
Let’s look at the attributes that make it one of the top tech stocks to buy now.
The first is the transition of its business model to services. Although Apple is indelibly associated with its iconic iPhones to the public, it has not relied on iPhones to drive profit growth for roughly five years.
Apple management is very savvy about its business model. Given the huge popularity of iPhones, it’s prudent to expect that at some point the market will be saturated, even with impressive new rollouts such as the recent iPhone 7.
Right now, iPhones contribute almost two-thirds of Apple’s profits. Services (think iTunes, Apple Pay, Apple Music, and iCloud) contribute approximately 15%.
But by 2020, it is estimated that services will contribute 29% of the company’s income before taxes and expenses. In other words, that’s an increase of nearly 100% in four years.
What Apple does is sell the devices people feel they must have, then they ramp up the services they can receive on it. Money Morning Chief Investment Strategist Keith Fitz-Gerald notes that Apple receives hefty revenue stemming from apps and from its service contracts.
Services and data are the real future of Apple. Fitz-Gerald expects AAPL to hit a share price of $200 over the next four years. From the current $112.97 price, that’s a 77% price increase.
In addition, AAPL has a huge pile of cash. For the company, it means they have a lot of options. Buy a company that fits their business strategy. Increase the dividend.
In fact, despite Apple’s history as a scrappy startup, investors looking for the best tech stocks to buy should focus on its dividend history. It’s been solid for a number of years now. The current quarterly dividend of $2.28 yields 2.02% – much better than current U.S. Treasury bond yields.
Top Tech Stocks to Buy Now No. 2: Facebook Inc.
At the current share price of $128.27, Facebook Inc. (Nasdaq: FB) is up nearly 25% year to date.
Money Morning Director of Tech & Venture Capital Michael A. Robinson forecasts that FB will hit a per share price of $250 by 2020. That would be a profit of 94% from today’s price.
The shares have been strong over the past several months on the strength of FB’s quarterly earnings.
In July, the company reported earnings of $0.97 per share and revenue of nearly $6.45 billion. User counts, which analysts watch closely in assessing the health of its business, was reported at 1.13 billion. The monthly active user count equaled 1.7 billion. Both were above analysts’ estimates.
And Facebook has three major untapped revenue sources: Messenger/WhatsApp, Oculus Rift, and Instagram. Revenue for all are estimated to grow rapidly going forward.
Right now, the communications platform Messenger has more than 1 billion users. WhatsApp boasts roughly 900 million. According to Deutsche Bank, both WhatsApp and Messenger will be responsible for up to $10 billion in revenue annually by 2020.
Take virtual reality (VR), the market in which FB’s Oculus Rift participates. Tractica, a market intelligence provider, estimates that sales of VR accessories, content, and displays will rise to top $21.5 billion globally by 2020.
And Instagram? Credit Suisse forecasts that Instagram will drive up to $3.2 billion in revenue in 2016.
Top Tech Stocks to Buy Now No. 3: Raytheon Co.
Raytheon Co. (NYSE: RTN) is one of the top defense stocks, but it is also a tech play.
Defense has been highly technology-driven for decades. However, in the future, it will be fighting a specific technology threat: cyberterrorism. Cyberterrorism is a global threat, and it rises every day.
Unfortunately, products and services to counteract cyberterrorism are absolutely must-have products. That makes RTN a top tech stock to buy now.
Some analysts expect smaller tech firms will be the recipients of the contracts for anti-cyberterrorism products and services.
Will smaller tech companies be able to bid successfully for most of the new technology investment dollars needed to combat cyberterrorism? Many observers think so. But it looks as if defense tech titan Raytheon is emerging as the winner in the cybersecurity space. That’s because the company has the resources and expertise to run successful legacy systems.
Over the last 11 years, RTN’s cybersecurity divisions have received investment to the tune of $3.5 billion.
Finally, RTN has the type of security clearance needed for cybersecurity work, while its smaller competitors in the space may not. At the current share price of $136.13, Raytheon shares have returned 9.4% on the year. Plus, it pays a dividend yield of 2.15%.