The 10 best tech stocks to buy for 2020.
The 2010s, among other things, were characterized by the rapid rise of Big Tech, which brought Wall Street its first trillion-dollar empires. Entering 2020, the five most valuable companies traded on U.S. exchanges were all tech stocks. As 2020 has progressed — despite the extreme volatility and the specter of antitrust regulation — Silicon Valley has not only become more dominant but has gone down as the standout sector in the first half of the year. Through July 7, the S&P 500 was down about 2% year to date, and U.S. News’ 10 best tech stocks to buy for 2020 were up more than 11% as a portfolio. Here’s a look at how each pick is faring.
Microsoft Corp. (ticker: MSFT)
Parlaying competitive advantages it established in the 1990s, 2020 has been a great year for Microsoft. “We’ve seen two years’ worth of digital transformation in two months,” CEO Satya Nadella said in its last earnings report. It’s still one of the best tech stocks to buy for 2020, and the company has invested its cash brilliantly: It got into tablets with the Surface, video games with Xbox and social networks with its LinkedIn acquisition. The Windows upgrade cycle allows for guaranteed recurring revenue, as does the brilliant decision to make Microsoft Office a cloud-based subscription product. Azure, its cloud computing division that is second only to Amazon.com’s (AMZN) AWS by market share, highlights MSFT’s growth prospects, with revenue soaring 59% last quarter. Microsoft Teams, its workplace collaboration software, is seeing rapid adoption as well.
Year-to-date return: +32%
Dell Technologies (DELL)
Another 1990s business that helped PCs go mainstream is Dell, which, after evolving and diversifying, is attractive enough to be one of the best tech stocks to buy for 2020. Dell isn’t just a computer company anymore, with tentacles in the data center, storage, servers and the cloud — a diversified portfolio of modestly growing business units. Its commercial PC business picked up steam last fiscal year, driving operating income growth of 60% in the client solutions group. Most importantly, Dell acquired a roughly 80% stake in VMWare (VMW) in 2018, a stake currently valued around $50 billion (it was just $22 billion months ago). Dell’s current market cap is actually about $10 billion lower than its VMWare stake. Now that Dell is officially “exploring strategic alternatives” for VMWare, the stock, which traded as low as $25 in March, is more than $50 per share.
YTD return: +3%
For a second consecutive year, application software giant Adobe makes the cut as one of U.S. News’ best tech stocks to buy. ADBE stock gained 46% in 2019, but there’s still long-term upside in Adobe, the company behind the suite of iconic creativity apps that includes Photoshop, InDesign, Illustrator, Acrobat and Premiere, to name a few. Simply put, this is a must-have software for many industries and professionals, and Adobe’s cloud-based software-as-a-service model helps bring high-margin recurring revenue — an investor’s dream. ADBE is still growing sales by about 15% to 20% a year, and it has been one of the top-performing tech stocks on this list so far, up about 36% in the first half of the year.
YTD return: +36%
Communications and media giant AT&T also has an entrenched business, but it isn’t growing like an Adobe or Microsoft. Across the U.S., AT&T boasts more than 100 million U.S. customers paying for TV, mobile or broadband services. After acquiring WarnerMedia, the company became an entertainment empire; it’s the parent company of Hollywood studio Warner Bros., DC Comics, HBO, CNN, TBS, TNT and many more. Trading around nine times forward earnings, AT&T pays a sustainable 6.9% dividend. Ironically, AT&T should normally bring relative stability to the list of the best tech stocks to buy for 2020, but it has been one of the bleaker performers year to date. It expects about $28 billion of free cash flow in 2020.
YTD return: -22.2%
As one of several tech names on U.S. News’ list of best stocks to buy for 2020, Facebook is automatically one of the best tech stocks to buy for 2020 as well. FB trades for just 24 times forward earnings — not bad for a company expected to grow profits by 35% next year. Although Facebook boasts more than 2.6 billion monthly active users, it’s still growing that figure by about 8% annually. Around 2.9 billion people use either Facebook, WhatsApp, Instagram or Messenger at least once a month. Even if a Democrat is elected in 2020 and pushes for the breakup of Facebook, investors might still benefit as Wall Street would be better suited to fully value each business segment.
YTD return: +17.3%
You’ll be forgiven if you haven’t heard of STMicroelectronics, a $25 billion Swiss semiconductor company. But for investors currently digging around for the best tech stocks to buy, STM is a contender. Its chips help power some interesting end markets, including the automotive sector, where STM chips will help the accelerating adoption of electric vehicles. STM also makes wireless charging, touch and display products for smartphones, as well as data center power solutions needed for the transition to 5G. Trading for a lowly price-earnings-growth (PEG) ratio of 0.5, analysts expect earnings per share to grow 49% annually for the next five years, making its P/E of 24 look like a steal.
YTD return: +1.3%
Alibaba Group Holding (BABA)
If you’re in the habit of seeking out the top tech stocks to buy, odds are you’d like one or two of them to provide some impressive growth. Alibaba, despite already pulling down more than $70 billion annually in revenue, still qualifies as an out-and-out growth stock as the closest analogue to Amazon in China. Unlike Amazon, whose cash cow is its cloud computing division despite being dwarfed in size by its retail division, Alibaba’s profit center is its core electronic retailing division, using those earnings to fund other business endeavors, which now include a booming cloud computing business of its own as well as a thriving entertainment division. Alibaba has 846 million mobile MAUs on its China retail marketplaces alone.
YTD return: +11.5%
IAC/Interactive Corp. (IAC)
IAC is a roughly $10 billion media and internet company that operates almost like a publicly traded incubator. Media legend, former CEO and current IAC Chairman Barry Diller has created enormous wealth for shareholders, guiding the stock from $2 a share in 1995 to $250 at the dawn of 2020. The company’s nominal share price has been adjusted this year following the recent spinoff of online dating giant Match Group (MTCH), in which IAC had an 80% stake. The spin has been great for shareholders, unlocking value and giving previous owners one additional IAC share and 2.1584 shares of MTCH. Previous spinoffs include Expedia (EXPE), LendingTree (TREE) and Live Nation (LYV). It currently owns stakes in ANGI Homeservices (ANGI), as well as fast-growing media companies Vimeo and Dotdash. IAC is the top-performing stock on this list.
YTD return: +73%
While it doesn’t get the ink of a company like Alibaba, Chinese online classified company 58.com also made the cut as one of the best tech stocks to buy for 2020. Sometimes colloquially called “China’s Craigslist,” WUBA is expected to grow sales by about 20% in 2021 as China’s rising middle class continues to boost demand for jobs, goods, real estate and other services. Although clearly the Chinese economy’s 2020 hopes have been altered by the pandemic, WUBA actually recently agreed to be taken private for $8.7 billion, making it unlikely WUBA stock will move much going forward unless lawsuits establish shareholders deserve a higher price.
YTD return: -16.5%
The Rubicon Project/Magnite (RUBI, MGNI)
Last and by far least by market cap is the roughly $800 million Rubicon Project, a volatile yet promising stock in the digital advertising space. The company’s software largely focuses on automating the selling of online advertising en masse, over both mobile applications and the wider web. The company recently merged with a company called Telaria and now boasts “the largest independent omnichannel sell-side platform in the world,” according to its press release. Now trading under the name Magnite and adopting the ticker MGNI, analysts see 15% top-line growth in 2020 and 33% revenue growth in 2021 as the company starts to turn profitable. This stock likely has the highest risk-reward on this list, so it’s not ideal for blue-chip investors.
YTD return: -18.3%
The best tech stocks to buy in 2020:
— Microsoft Corp. (MSFT)
— Dell Technologies (DELL)
— Adobe (ADBE)
— AT&T (T)
— Facebook (FB)
— STMicroelectronics (STM)
— Alibaba Group Holding (BABA)
— IAC/Interactive Corp. (IAC)
— 58.com (WUBA)
— The Rubicon Project/Magnite (RUBI, MGNI)
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