WHAT ARE THE BEST TECH STOCKS TO BUY NOW?

The tech sector has been on fire for the last few years, and most of the best growth opportunities are to be found in the sector. So, what are the best tech stocks to buy now? The market has become a little more selective in 2019. Strong revenue growth alone isn’t good enough. A company needs to prove it can make a profit too.

As such, this article outlines our top five tech stock picks, with a bias toward profitability. The first four stocks have very strong fundamentals and are all very profitable. The fifth is more speculative but offers a good reward to risk trade-off.

Adobe (NYSE: WORK)

Adobe has three business segments. The digital media segment allows businesses to publish, manage, and monetize content. The digital experiences segment provides solutions to digital marketers. The main growth driver, however, is the cloud suite of creative products.

Adobe’s creative cloud includes more than 10 online programs for creative professionals. These include Photoshop, Illustrator, and Lightroom. As the digital economy grows, more designers, illustrators and layout artists, and UX professionals are required. Adobe’s creative suite is the go-to platform for all these people.

The company is worth $132 billion and has annual revenues of over $10 billion. Adobe generates nearly $1 billion a quarter in free cash flow, making it exceptionally profitable.

Adobe’s latest financial results showed the company growing revenue at over 23% a year, which is very strong growth for a company of this size that also has an operating margin of 28%.

The stock does trade at a premium, but the price has fallen 10% since July. If it falls another 10% or so, it may offer long-term investors a good entry.

Apple (NASDAQ: WORK)

Apple is an iconic company known for several innovative products, from the Apple Mac to the iBook, iPod, iPad, and iPhone. However, Apple plans to grow by offering subscription services and media, alongside its hardware.

Apple is worth nearly $1.1 trillion, making it the most valuable company in the world. It trades on an earnings multiple of 29, which is a little high given its profit growth over the last five years. However, if Apple’s strategy goes according to plan, the growth should justify the current price.

The company hopes to drive growth by growing subscriber numbers for each of its many subscription services. The App Store and iTunes have been around for a long time and are well known. More recent additions include Apple TV+, Video Games, storage, and credit cards. Apple is also entering the healthcare industry with apps connected to its watch.

Intuit (NASDAQ: WORK)

Intuit sells accounting software, including the very popular QuickBooks product. The company’s focus now is on its online accounting solutions which are rapidly gaining traction.

Intuit has a market cap of $69 billion, and an annual revenue of around $6.7 billion. Over the last five years revenue growth has averaged 9.8%, while profits have grown at 15% a year.

This is a very profitable business. Its gross margin is 83%, and the operating margin is 27%. Debt is very low, and the company’s ROE is 46%. These are very high numbers for a tech company, which will also be resilient to a recession. Most of Intuit’s revenue comes from recurring subscriptions, and businesses don’t stop doing their accounting during a recession.

There is always a catch with a company as impressive as this. In Intuit’s case, it is that the valuation is high. The stock is trading at 45 x the last 12 months of earnings, and 32 x expected earnings for the next year. Intuit is, therefore, a good stock to buy if the market corrects and the price falls to attractive levels.

SAP (NYSE: WORK)

German-based SAP provides enterprise application software. Its solutions allow almost any type of company to manage nearly every aspect of their business.

The company is worth $144 billion and generates annual revenue of $28 billion. In recent years the company’s growth slowed to around 5%. However, the company is now launching cloud-based solutions which are gaining traction. Recent results showed the cloud business growing at 37% a year and contributing over 20% of revenue.

As the cloud business grows, its share of revenue will grow and overall growth should pick up. The company competes with Oracle and Salesforce, both of which are facing challenges. SAP is the safer bet amongst the three, and if investors switch to the stock, the price should outperform.

Slack (NYSE: WORK)

Slack has only been a listed company since June. Slack’s platform is described as the first upgrade to email since the 1970s. The platform is like an instant messaging platform but offers numerous features to improve team productivity and collaboration.

The market value of Slack is $12 billion, and annual revenue is running at about $500 million. The company is not yet profitable, and so a speculative bet. However, revenue is growing at nearly 100% and the company has a lot of room to grow.

Slack is a more efficient tool than email when it comes to team collaboration. The company already has 12 million active daily users, of whom half are paying subscribers. While Microsoft, Google, and Facebook all offer competing products, users prefer Slack because it is intuitive and the list of features it offers is growing every month.

The stock began trading at $40 which was much too high. It has since fallen to $22, where it looks more attractive. If it was to fall much further it would probably be bought by a competitor, while it could also be trading at $50 in the next few years. So, the downside is relatively limited compared to the upside potential.

 

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