Tech stocks have created significant wealth for investors over the years. Imagine investing in Apple, Google, or Amazon at the start of this millennium. What if you bought Netflix in 2011? High-growth tech stocks can generate exponential returns. However, they have a high beta, which means they underperform markets by a considerable margin in a downturn.
In this story, we identify five tech stocks that we believe are a solid bet for the long term. Investors need to watch for these companies and consider buying them at every major dip.
Roku led growth among tech stocks
Roku is valued at $17 billion and is trading at an all-time high of $150 per share. Yes, the stock is trading at a high premium and is still struggling to be profitable. However, investors are banking on the size of Roku’s total addressable market (or TAM), which can drive its future growth.
The cord-cutting phenomenon has helped Roku increase its sales from $320 million in 2015 to $742 million in 2018. Its sales growth accelerated from 25% in 2016 to 28.6% in 2017 and 45% in 2018. Analysts expect Roku’s sales to grow 46.9% in 2019 and 35.5% in 2020, and they gave the stock a 12-month average target price of $120.
Roku is a domestic giant in its segment and has yet to expand into international markets. In our view, its market opportunity is massive.
Splunk (SPLK) has the potential to be a winner among tech stocks. Although the stock is up just over 6% year-to-date, it has returned 90% in the last three years. Splunk stock is trading at $111 per share, which is 23% below its 52-week high. Investors have been concerned about Splunk’s cash flow metrics recently, driving its shares lower since May 2019.
Splunk has moved to a subscription-based model that has impacted its cash flow. The company’s stock price should move higher, given its robust growth rates. Splunk’s sales are estimated to grow 28% in fiscal 2020 and 21% in 2021.
Its earnings are estimated to rise at an annual rate of 33% in the next five years. Analysts have a 12-month target price of $151 for Splunk, indicating an upside potential of 36% in the next year.
Similar to other tech stocks in this list, Alteryx (AYX) has also been a massive wealth creator. Alteryx was publicly listed in March 2017 and has returned 814% since then. The stock is up 138% year-to-date and is trading at an all-time high of $141.66.
Alteryx is banking on the massive opportunity in the data analytics space. It provides data analytics products for employees that help enterprises improve productivity. Alteryx is valued at $9.1 billion or 24x 2019 sales.
AYX sales are estimated to grow 83.4% to $375 million in 2019 and 33.2% to $499 million in 2020. While the stock is trading at a forward PE multiple of 181x, analysts expect its earnings to grow by 2,500% in 2019 and 62.5% in 2020. Analysts have a 12-month target price of $139.23 for AYX.
ServiceNow (NOW) stock has gained 46% year-to-date. However, its shares are down 6% this month and trading at $260, which is 14% below its 52-week high. ServiceNow is a top technology stock and has returned 320% in the last five years.
ServiceNow’s shares have fallen recently after investors became concerned about a slowdown in IT spending. However, ServiceNow’s growth story remains solid. Analysts expect its sales to rise 32.6% to $3.46 billion in 2019 and 28.6% to $4.45 billion in 2020.
The stock is trading at a forward PE multiple of 60x, compared to its expected EPS growth of 33% in the next five years. This indicates that NOW is trading at a premium. Analysts have a 12-month average target price of $317, which indicates that ServiceNow might gain close to 22% in the next year.
Twilio has outperformed tech stocks and indices
Shares of Twilio (TWLO) have risen 46% year-to-date, and its stock is up 372% in the last five years. Investors have experienced recent weakness after its shares fell despite stellar second-quarter results. TWLO is trading at $130 per share, which is 14% below its 52-week high.
This cloud communications company is estimated to increase its sales by 71.9% to $1.12 billion in 2019 and 33% to $1.49 billion in 2020. Twilio is also expected to increase its earnings by 54.5% in 2019 and 82.4% in 2020. Analysts have a 12-month target price of $151 for TWLO stock.
Market Realist analyst Aditya Raghunath does not hold a position in any of the stocks mentioned above.