Tech investors are likely to look at the stock market with some hesitation right now. Over the past three months, the Nasdaq Composite, an index comprised heavily of technology stocks, has tumbled about 14%. In general, investors have been concerned with the possibility of a trade war between the U.S. and China, rising interest rates, and fears that the economy may be headed for a slowdown.
But the drop in tech stocks -- and the broader market -- has opened up opportunities for investors looking to buy tech stocks at a discount. To help you find some of the best choices, we reached out to three Motley Fool contributors for their top tech stocks to buy in December, and they came back with Adobe (NASDAQ: ADBE), TTM Technologies (NASDAQ: TTMI), and Apple (NASDAQ: AAPL). Here's why.
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Touch up your returns with Adobe
Steve Symington (Adobe): Shares of Adobe Systems may have pulled back after the creative software juggernaut announced fiscal fourth-quarter 2018 results last week. But don't take that to mean Adobe's performance was subpar. To the contrary, Adobe just capped a record year in which revenue soared 24% to just over $9 billion, exceeding every one of its annual and fourth-quarter targets in the process. And now that Adobe has all but completed its shift away from perpetual licenses and toward a cloud-based subscription model, around 90% of its total revenue now comes from recurring sources.
What's more, Adobe has been busy expanding its reach through strategic acquisitions, including its $1.68 billion purchase of e-commerce leader Magento Commerce last quarter and, more recently, its $4.75 billion deal for B2B cloud marketing specialist Marketo in October. As Adobe integrates these new products into its already-comprehensive suite of software solutions, the underlying momentum of its business -- and, in turn, its stock -- should only continue to gain steam in the coming years. So with shares up 25% over the past year, but still trading at a reasonable (relative to its growth rates) 23 times this year's expected earnings, I think long-term investors should consider opening or adding to a position in Adobe today.
These bargain-bin discounts won't last long
Anders Bylund (TTM Technologies): The electronics market has been a rough place in 2018, and printed circuit boards (PCB) maker TTM Technologies suffered a 43% drop in share prices over the last six months alone. The move was by no means unique in TTM's sector as red ink flowed all over the company's major rivals as well.
There is simply no way this downtrend can last for very long. Every circuit board supplier on the market -- TTM included -- is experiencing a temporary order lull here that should bounce back into full action in 2019.
It's easy to pin the blame on the Chinese-American trade conflict, which is making it difficult to sign new deals that involve moving goods between these countries. There's some truth to that argument. TTM is an American company but eight of its 13 PCB manufacturing plants are in China and roughly 50% of the global demand for circuit boards comes from the Middle Kingdom. Anything that slows down commerce between America and China is inherently bad for any company in this border-spanning situation.
But that's not the whole story. Consumers and enterprise-level equipment buyers alike are also waiting for commercial launches of next-generation wireless services. The technical standards got their final spit shine this year and 2019 should see ultra-reliable gigabit networks that can handle many times the number of concurrent connections that would make today's best networks choke. So why buy a 4G smartphone today when you can wait for a much better 5G device next year?
That ground-level delay in wireless hardware upgrades plus the Chinese trade tensions add up to an artificial slowdown that can't last forever. Demand for 5G devices will surely be impressive, and maybe even strong enough to make the smartphone builders swallow the tariffs in order to keep up with it. One of these days, the politicians might even settle their differences and get on with business as usual, providing another rocket booster for stalled order flows.
Meanwhile, TTM Technologies is trading at just 6 times trailing earnings and 9 times free cash flows. With industry-leading profit margins and a comfortable cash cushion to boot, this stock should have no trouble coasting through a few difficult quarters to pounce on the upcoming market recovery.
Apple still has bright days ahead
Chris Neiger (Apple): Apple's share price has tanked about 24% over the past three months, and that's gotten investors spooked. Some are even wondering if Apple has any more must-have devices left in its back rooms to woo new customers. All of that makes it feel like the magic might be gone at Apple, but there are a couple of reasons why investors should ignore those feelings.
The first is that the company still has lots of potential from its growing services businesses. Services include everything from AppleCare to Apple Pay and Apple Music to the App Store. For fiscal full-year 2018, services revenue increased 27% to $10 billion. Apple is on track to meet its goal of doubling its 2016 service revenue by 2020.
Additionally, it still has still has $237 billion in cash that it can use to invest in new devices, services, and for buying other companies. That cash hoard shouldn't be overlooked by investors. Apple is rumored to be working on augmented reality glasses and even an autonomous driving system. Tech companies that are making huge bets on new ideas need equally huge amounts of money to pull them off. Apple has both the talent and money to enter new markets and strong leadership at the helm in CEO Tim Cook to steer the company in the right direction.
Skeptics have been proved wrong many times in the company's history and the current doubts about Apple will likely play out the same way. Investors have an opportunity to snatch up shares at their current price of just 11 times the company's forward earnings. At that price, buying this top tech stock looks like a no-brainer.
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Anders Bylund has no position in any of the stocks mentioned. Chris Neiger has no position in any of the stocks mentioned. Steve Symington has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Adobe Systems and Apple. The Motley Fool has the following options: long January 2020 $150 calls on Apple and short January 2020 $155 calls on Apple. The Motley Fool has a disclosure policy.