The past several months have been torture for anyone who owns tech stocks.
After a heroic run in 2017 bled into the beginning of 2018, led by the so-called "FAANG" stocks - Facebook (FB), Apple (AAPL), Amazon (AMZN), Netflix (NFLX) and Google parent Alphabet (GOOGL) - the technology sector has been severely battered and bruised since early October.
That beating may have run its full course, though, and in retrospect looks like a garden-variety correction that tech stocks often must make. Besides, as volatile and unpredictable as the sector can be, technology still is technology - it remains the best growth opportunity that investors will find for the indefinite future.
With that as the backdrop, here are a dozen of the best tech stocks to buy for 2019. These companies all should perform better in the new year than they did in 2018. And in a few cases, a solid dividend and strong track record of payout increases bolsters the bullish case.
Market value: $70.4 billion
Dividend yield: 0.5%
Nvidia (NVDA, $115.40) has taken investors on a roughly three-year roller coaster ride. After gaining nearly 800% between the beginning of 2016 and the high hit in October 2018, NVDA shares have been cut nearly in half.
The meltdown of the cryptocurrency market was a contributing factor, sure. But investors likely also realized the stock had gotten more than a little ahead of the company's profits.
That said, the selloff from the early October peak is just as overdone as the preceding runup was. That translates into opportunity.
The average investor largely misunderstands Nvidia's product mix, and therefore its revenue mix. As frenzied as crypto-mania was at its pinnacle, it was never a breadwinner for the organization. For example, during the first quarter of 2018 - shortly after Bitcoin prices reached record highs - Nvidia sold only $289 million worth of graphics processors to crypto-miners. That was less than a tenth of Nvidia's revenue for the quarter, when sales of GPUs to miners were apt to be their strongest.
Most of Nvidia's business comes from video gamers looking to upgrade their experiences; they accounted for more than half of the company's third-quarter top line. Its next-best market is datacenters, which includes artificial intelligence applications; that makes up about one-fourth of Nvidia's business. Those two markets aren't going to fade away like cryptocurrency mining did, and both are much bigger.
Market value: $35.1 billion
Dividend yield: N/A
Workday (WDAY, $159.56) is anything but a household name, though odds are good that at least one person in most U.S. households is impacted by Workday. The software company has developed cloud-based apps for a variety of human resources and financial industry needs.
The organization isn't yet profitable on a generally accepted accounting principles (GAAP) basis, but it does operate in the black. More important, it's growing its top and non-GAAP bottom lines at an impressive clip. Revenue is on pace to improve more than 30% in the current fiscal year, and Wall Street analysts expect 25% sales growth next year. Per-share operating profits, which rolled in at $1.03 last year, are projected to reach $1.27 this year and rise to $1.61 in the coming fiscal year. That's also a reasonably dependable outcome; you can't say that of all technology companies.
The key to Workday's consistency is how its software is sold. Its customers subscribe to its cloud-based platform rather than make a one-time purchase of it. This drives reliable recurring revenue, and Workday's customers love the financially flexible arrangement.
The previous quarter's subscription revenue of $324 million was nearly a 35% year-over-year improvement, and the subscription revenue backlog now stands at a whopping $5.9 billion. That's 31% better than where it was at this time a year ago.
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Market value: $770.6 billion
Dividend yield: 1.8%
Workday is hardly the only outfit getting on the recurring revenue bandwagon. Even prolific names such as Microsoft (MSFT, $100.39) are now hyper-focused on selling cloud-based access to applications such as its Office productivity suite and Azure cloud-management platform.
And the iconic company has only scratched the surface of the cloud opportunity ahead.
Joel Kulina, Wedbush Securities Senior Vice President of Tech, Media and Telecom, says he's "bullish into 2019 as Azure's cloud momentum is still in its early days of playing out with the company's massive installed base." The analyst also feels that Office 365, the cloud-based version of Office, will experience growth tailwinds for the next 12 to 18 months at least. Kulina adds that Microsoft's "unparalleled enterprise customer base" leaves the organization "very well positioned to the transformational cloud trend set to play out over the coming years" in what he refers to as a "cloud arms race."
His only concern is a faster-than-expected deceleration in Azure's revenue for fiscal 2019. But this tech stock's lethargy seen during the final quarter of calendar 2018 may have been the market's adjustment for that information.
Market value: $3.3 billion
Dividend yield: N/A
Most newly public stocks hand out lots of volatility, and Roku (ROKU, $30.16) has been no exception since its September 2017 IPO. While the big swings have been more up than down, they've nonetheless made some shareholders nauseous and frightened other investors away altogether.
The dust is starting to settle, however. And while Roku hasn't yet reached its full potential, it appears to be on its way.
Roku is the name behind the popular internet-television tuner of the same name. It stood up against titans such as Apple, Google and Amazon, and beat them all to become the market-share leader within the standalone digital TV-tuner market.
That's not the key to its future, however, nor its projected swing to a 2020 profit. Roku has figured out there's also money to be made in licensing its name to television manufacturers who want to build the company's technology into TV sets. Roku also has embraced the idea of selling ads on the main screens seen by users as they navigate their device's menu. This so-called "platform revenue" increased by 74% year-over-year in the company's most recently reported quarter, which, as impressive as the growth rate was, still fell short of analyst estimates.
The relative disappointment was the basis for much of Roku's recent weakness. But the formulation of more reasonable expectations in 2019 should make Roku one of the best tech stocks to buy for 2019.
Market value: $68.9 billion
Dividend yield: 4.4%
As incredible is it may sound, shares of Qualcomm (QCOM, $56.81) haven't made any net progress since mid-2012. Between ongoing legal battles with Apple and revenue that's been waning since 2014, shareholders have simply had little to celebrate.
But 2019 could be a turnaround year for this telecom technology maker.
Wireless service Verizon will roll out its first 5G service in early 2019, and Samsung will make the industry's first smartphones capable of using this ultra-high-speed connectivity, which is up to 20 times as fast as 4G connections in use now. That device's 5G modem will be made by none other than Qualcomm.
Qualcomm has more growth opportunities than 5G modems, however. The company's newest microprocessor, the Snapdragon 855, has been designed from the ground up to make the most of the massive amounts of data 5G connections will be able to handle. The Snapdragon 855 will offer up to three times as much artificial intelligence power as anything available now, and is expected to handle augmented reality and other data-intensive applications with ease. This catalyst might just shake QCOM shares out of their multiyear rut.
Market value: $15.2 billion
Dividend yield: N/A
The term "big data" didn't really seem to be in existence until 2005, when O'Reilly Media's Roger Mougalas is credited with its first use. Corporations have been looking for ways to gather massive amounts of data for decades, of course, but it has only been a relatively efficient endeavor since the 1990s, when personal computers became a common business that could manage all that information.
But even if an organization has lots of data, that doesn't mean that organization can do something constructive with it. Tools that turn data into actionable information has only recently become an industry in and of itself.
Cornelio Ash, Equity Analyst with William O'Neil + Co., believes a company called Splunk (SPLK, $102.79) is one of the best picks within the business.
"Splunk is a primary beneficiary of the artificial intelligence tailwind, which is impacting and changing virtually every industry," Ash says. "Over the next two years SPLK's revenue and (earnings per share) is expected to increase at a compound average growth rate of 25% and 53%, respectively."
The analyst highlights the fact that Splunk is widening its market to serve not just artificial intelligence outfits, but to meet the needs of cybersecurity, Internet of Things and IT operations organizations.
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Market value: $3.2 billion
Dividend yield: N/A
Just when it looks like computer hacking and cyber-sabotage are under control, another bigger and more damaging data breach surfaces. The problem is never going to go away. Indeed, Gartner estimates that information-security spending will grow 9% in 2019, to $124 billion.
Enter FireEye (FEYE, $16.09).
FireEye is a relatively young company, founded in 2004 - a time during which cyberthreats were starting to become an inevitable, permanent part of the future. The company didn't go public until 2013, however, and though investors' hopes were high at the time, FireEye wasn't quite the performer early shareholders expected. The cybersecurity outfit spent heavily on acquisitions, leading to increasingly large losses. The stock currently is well below its post-IPO peak.
FEYE stock still is trending higher from its early 2017 low, however, as its revenue grows and its losses start to shrink, with profits finally in sight. The company will see its first full-year operating profit with 2018's results, and should be GAAP-profitable sometime around 2021 or 2022.
The turning point was the launch of a cloud-based product called Helix, which offers customers subscription-based access to a suite of cybersecurity tools. Morningstar analyst Mark Cash writes, "As FireEye embraces a subscription-based business model, we expect the product subscription business to grow the fastest, more than offsetting long-term declines in the legacy products and support and maintenance divisions. We believe this shift, coupled with new product launches, will allow for material top-line and margin expansion."
Market value: $21.6 billion
Dividend yield: N/A
It only has a fraction of the size and reach of competing social media site Facebook, and is not nearly as exciting as newcomer Snap (SNAP). But in some regards, being a bit smaller and more off-the-radar than its rivals has quietly let Twitter (TWTR, $28.43) finds its groove and become the growth machine it should have become long ago.
Better late than never.
Twitter isn't bulletproof, to be clear. One valid criticism is its waning headcount. "The knock on Twitter is that the daily average user growth has been slowing for the last few quarters," says Strategic Wealth Partners president and founder Mark Tepper. He counters, however, by pointing out "that they're really focused on shutting down fake accounts, so I think a number like that is really important for Facebook where people might only log in once a day, but with Twitter it's more about the user engagement."
Proof of better user engagement is in the numbers. While the number of active monthly users actually fell by 9 million during Q3, its third-quarter top line was up 29% year-over-year. More of the same is projected for 2019.
More important, Twitter has already proven it can turn a profit doing what it's now doing. By providing specific reasons for users to plug into the microblogging platform and giving them specific topics to discuss, the organization has booked a little more than $1 billion worth of net income over the past four quarters.
Market value: $11.3 billion
Dividend yield: N/A
Although Verizon (VZ) will be the first wireless telecom name to commercialize 5G connectivity, and Samsung - with the help of Qualcomm - will be the first manufacturer to mainstream 5G smartphones, those organizations wouldn't be able to do what they're about to do had a relatively small company called Keysight Technologies (KEYS, $60.13) not helped pave the way.
Keysight makes and markets technological testing equipment. Specifically, it offers solutions for network security developers, connected car designers, cloud-computing solutions providers and more. Most recently it has been leaned on to provide 5G engineers with testing equipment that ensures all the complexity of 5G connections is properly addressed. In fact, both Qualcomm and Samsung have acknowledged they relied on Keysight Technologies in helping make 5G a reality. The company's 5G toolset was even the first to be approved for 5G device-certification purposes. In other words, its wares will serve as the yardstick used to test other 5G technologies.
The advent of 5G has already proven to be a boon for Keysight, though the best may be yet to come. Moderate but reliable sales growth is expected to drive per-share profits of $3.78 for all of 2018, up from 2017's $3.24, then lead to income of $4.25 per share in 2019. That's 12% earnings growth for a stock priced at less than 15 times 2019's projected earnings, and from a company that has gotten in the habit of topping earnings estimates.
Market value: $192.3 billion
Dividend yield: 3.1%
In the late 1990s, when the internet was new and changing the way the world worked, Cisco Systems (CSCO, $42.77) was unstoppable. Organizations and even individuals were thrilled with the advantages of networked computers, and Cisco was the go-to name for routers and switches. Few could compete with the king of the networking world.
Much has changed in the meantime. Namely, newcomers like Juniper Networks (JNPR), Arista Networks (ANET) and Aruba are supplying real competition, while more established names such as HP (HPQ) and Dell have quietly tiptoed onto some of Cisco's turf.
The pros aren't exactly stoked. Nomura recently downgraded CSCO from a "Buy" to "Neutral," suggesting the stock already is overvalued at a time IT spending may well slow down.
Cisco has a couple of aces up its sleeve, however, that the pros and amateurs alike are underestimating. One of them is the company's $42.6 billion worth of cash and near-cash assets - versus a market cap of $206 billion - which allows the organization lots of flexibility. What Cisco can't develop to be competitive, it can acquire.
The other matter working in Cisco's favor is the relatively recent realization that recurring revenue is the ticket to thriving in the future. Subscription revenue now makes up roughly a third of the company's sales, and a little more than half of its software revenue. That figure is growing, and has plenty more room to grow while Cisco gears up for the coming explosion of 5G.
Market value: $103.0 billion
Dividend yield: N/A
Salesforce.com (CRM, $134.68) won't win any value awards based on backwards-looking or forward-looking results. The stock is priced at nearly 50 times 2019's expected earnings - a hefty cost. But Wedbush Securities' Joel Kulina believes Salesforce.com is "well-positioned to benefit from the continuing secular shift to the cloud" and a worldwide "increased focus on digital transformation."
Salesforce provides a suite of cloud-based customer relationship management tools. Although the barriers to entry within the market are low, CRM is able to leverage its well-established name, and enjoys a wide lead on those would-be competitors.
Its edge lies in its ability to remain at the forefront of new applications of new technologies. For instance, the company has designed a way to use data created by IoT platforms by automating its delivery to employees that may be working in the field rather than at a centralized data hub. And what it can't develop, it can buy. It acquired MuleSoft in March, giving the company the ability to meld older and newer databases that would otherwise be tough to merge.
Kulina adds that with a potential market size in excess of more than $200 billion, Salesforce.com as a "long runway ahead" that could extend well beyond 2019.
Market value: $108.9 billion
Dividend yield: N/A
Contrary to what many investors might believe, Adobe (ADBE, $223.13) is so much more than PDFs and Photoshop. The software giant has built an entire suite of business-building applications, and organizations are falling in love with them.
It's called Experience Cloud, and it can do just about anything a company needs to do with digital data. From advertising to customer profiling to content management, Adobe's Experience Cloud empowers its users to do things with data, online and offline, that were inconceivable just a few years ago. The company's Creative Cloud gives users online access to tools such as Photoshop, Illustrator and more. Subscribers enjoy that software updates are automatically applied, fuss-free.
Arguably the most compelling aspect of these cloud-based platforms is, however, the recurring revenue they generate. As of the end of the third quarter, Adobe was producing annualized subscription-based revenue of $6.83 billion, and the company is looking for steady growth of that figure. For perspective, the company's trailing 12-month revenue totals $9.06 billion.
The stock plunged following its recent fourth-quarter earnings miss, for the record. Profit projections of $1.88 per share were better than the $1.83 the company managed to produce. But with revenue of $2.46 billion topping estimates of $2.43 billion and a revenue outlook of $11.1 billion for the coming year thanks to the impending purchase of B2B marketing outfit Marketo, that post-earnings weakness may be a buying opportunity.
James Brumley was long CSCO and FEYE as of this writing.
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