The technology sector drove the comeback off the market’s March 2020 lows, as Wall Street dove into hard-hit stocks that were able to grow during harsh and unprecedented economic conditions. Tech giants and e-commerce firms showed that their businesses are built to thrive in a world that becomes more digitally focused every day.
The Nasdaq is up around 73% in the past year vs. the S&P 500’s 56%, despite the recent pullback. This significant outperformance stretches back for nearly a decade and the long-term trends of technologically driven growth isn’t going to reverse even though there has been a recent shift into cyclical sectors such as finance and energy.
The current market movement reflects optimism about the possibility of 6% U.S. GDP growth in 2021 and the hope that people will be able to return to something closer to their normal lives later this year as the coronavirus vaccine is rolled out. The continued injection of trillions of dollars into the U.S. economy and the Fed’s easy money policy has helped conjure up inflation fears that has led to a wave of bond selling that sent the 10-year U.S. Treasury up from around 1.13% in early February to its current 1.66% levels.
The higher yields have called into question tech valuation, but the Nasdaq’s recent correction was healthy and helped recalibrate things slightly. Plus, yields remain historically low and likely extend the there is no alternative market that we have been in for some time.
Clearly, there could be more tech selling or underperformance in the near-term. Yet savvy investors use these pullbacks and times of uncertainty to buy strong stocks at discounts because calling a bottom is impossible. That means scooping up shares of tech companies that are poised to grow for years, if not decades to come at nearly 20% discounts, even if they fall further, is a sound investment strategy.
Here are three highly-ranked diverse technology stocks that patient long-term investors should consider buying at nice discounts and block out any near-term fears or setbacks…
Pinterest PINS
Pinterest is a social media company that’s rather unique compared to Facebook FB, Twitter TWTR, and Snapchat SNAP. The company aims to be a visual discovery platform where people can "find great ideas."
PINS enables users to search for products, services, and more to help them do everything from make home-cooked meals to learn how to remodel or decorate a room. The firm has become a hit with advertisers, small businesses, entrepreneurs, and do-it-yourself enthusiasts.
Pinterest has thrived in the online shopping age, while offering users the ability to embark on a seemingly endless array of DIY projects and more. Plus, paid content and ads fit seamlessly into the Pinterest platform, which is vital in our digital-heavy advertising world where people pay to avoid ads on places like Netflix NFLX.
PINS beat our fourth quarter estimates in early February and its global monthly active users climbed 37% to 459 million, having added over 100 million new users in 2020. Its Q4 sales soared 76% to lift its FY20 revenue by 48% to $1.69 billion. This growth came on top of FY19’s 51% sales expansion.
Zacks estimates currently call for Pinterest’s FY21 sales to surge 46% to $2.5 billion, with FY22 expected to climb another 35%. At the bottom end, its adjusted EPS figures are projected to climb by 76% and 32%, respectively. And its strong earnings revisions positivity helps it grab a Zacks Rank #2 (Buy) at the moment.
Pinterest has soared 360% in the last year and 67% in the last six months blow away its industry and the tech sector. PINS got caught in the wave of selling alongside the likes of Tesla TSLA, Nvidia NVDA, and other high-flyers, and at $68 a share the stock trades 23% below its mid-February records.
The downturn has it well below neutral RSI levels at 42. On the valuation front, it’s now trading at a 30% discount to its own year-long highs at 16.1X forward 12-month sales, as well as Snap’s 18.3X and Shopify’s SHOP 30X.
PINS is positioned to remain a hit with everyone from fitness companies to home improvement firms as people disconnect from traditional media, from linear TV to magazines. The company is also dedicated to improving its offerings, including stronger video capabilities. And 12 of the 19 broker ratings Zacks has are “Strong Buys.”
Adobe ADBE
Adobe is far larger and more established than PINS and provides exposure to vastly different areas within tech. The company’s subscription-based software from Photoshop to InDesign are staples and standard-bearers in the creative and design fields. ADBE’s offerings are hard to replicate in a SaaS world that’s full of nearly identical offerings and its users include big businesses, schools, and individual consumers.
The company, which created the PDF and went public in the mid-1980s, has expanded its business-focused roster into marketing, commerce, and more. More recently, ADBE in December completed its acquisition of Workfront, a leading work management platform for marketers. And it has introduced newer creative software offerings for the digital media age where high-quality content is paramount.
Adobe topped our Q1 FY21 estimates on March 23 and it provided solid guidance. Its revenue climbed over 26% to destroy our top-line estimate, posting record sales in creative cloud, document cloud, and experience cloud. Meanwhile, its adjusted earnings climbed nearly 40% to top our bottom-line estimate by 13%. This strong growth for a company of its size and age during the remote world highlights ADBE’s long-term appeal.
Peeking ahead, Adobe’s revenue is projected to jump 19.4% in FY21 and another 15% in FY22. These Zacks estimates would extend its streak of around 15% or higher revenue growth to eight-straight years. ADBE’s adjusted earnings are expected to climb by 13.4% and 17%, respectively during this stretch. Plus, analysts have raised their bottom-line outlooks since its report.
The recent upward revisions help Adobe grab a Zacks Rank #2 (Buy), alongside its “A” grade for Momentum in our Style Scores system. On top of that, 12 of the 15 broker recommendations Zacks has for Adobe come in at “Strong Buys.”
Despite recent strength and its growth outlook, the stock has fallen 6% in the last six months to lag the tech sector’s 17% climb. As of Friday afternoon, Adobe was trading at around $463 a share, or 14% below its September 2020 highs.
Adobe has flashed comeback signs, up 10% since it fell into oversold territory (below 30) in terms of RSI on March 8. Luckily, it still sits near neutral levels at 53. ADBE is also trading at a 10% discount to its own year-long median at 13.6X forward sales. And investors can see that Adobe shares have outclimbed fellow tech stars over the last five years.
Apple AAPL
Apple is the world’s most valuable company with a $2 trillion market cap that posted 21% revenue growth in the first quarter of 2021—period ended on December 26—to reach $111.4 billion. The company topped our revenue estimate by nearly 10%, driven by strength from its new iPhone 12.
AAPL’s first 5G-capable smartphone helped iPhone revenue climb 17% last quarter to account for around 60% of total sales. And it wasn’t just the iPhone that shined in Q1, iPad and Mac sales surged 42% and 23%, respectively, with its Apple Watch and AirPods-heavy wearables unit up 29%.
Wall Street has also remained focused on CEO Tim Cook’s mission to continually make money from its massive and growing user base. These services efforts go far beyond its App Store and include Netflix and Spotify SPOT competitors, as well as a subscription news offering, a video game platform, digital workout classes, and more.
The world’s most valuable brand closed last quarter with over 620 million paid subscriptions, up 140 million from the year-ago period. Furthermore, Apple aims to bring more of its chips in-house, and there have been reports that it plans to eventually join the electric vehicle race.
With this in mind, Zacks estimates call for AAPL’s FY21 revenue to surge 23% to reach $336.7 billion. This would represent its best top-line growth since 2015 and help lift its adjusted earnings by 37%.
Apple has cemented itself as a high-end smartphone titan that will help it grow as people buy new phones every few years, even if there are less noticeable changes and upgrades to every model. And its growing services unit makes AAPL a more diversified force at a time when people are addicted to their smartphones. This means Apple is likely to remain a Wall Street darling and its recent downturn provides a ripe opportunity for patient long-term investors.
Apple stock soared during the early coronavirus comeback and after it announced its 4-for-1 stock split, which was completed in late August 2020. But it’s down 10% since September 1 to lag the tech sector’s 8% climb. More importantly, Apple is down around 18% from its late January records at $119 a share. AAPL also lands well below neutral RSI levels at 42 and it’s trading at a discount to its own year-long medians for forward sales and earnings.
The reason for the pullback appears simple enough: Wall Street took profits on AAPL, which is still up over 90% in the past year, despite its downturn to outpace the tech sector’s 70%. Along with its other fundamentals, Apple holds $84 billion in net cash, and it will keep repurchasing shares and paying dividends as it tries to reach “a net cash neutral position over time.”
AAPL’s earnings revisions help it land a Zacks Rank #2 (Buy) and 18 of the 25 broker rating Zacks has are “Strong Buys.” Therefore, it seems that now might be a great chance to buy shares of the biggest company in the world at a nearly 20% discount even if there is more near-term volatility and selling.
These Stocks Are Poised to Soar Past the Pandemic
The COVID-19 outbreak has shifted consumer behavior dramatically, and a handful of high-tech companies have stepped up to keep America running. Right now, investors in these companies have a shot at serious profits. For example, Zoom jumped 108.5% in less than 4 months while most other stocks were sinking.
Our research shows that 5 cutting-edge stocks could skyrocket from the exponential increase in demand for “stay at home” technologies. This could be one of the biggest buying opportunities of this decade, especially for those who get in early.
See the 5 high-tech stocks now>>
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