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Where's Tech Headed in 2020?

Andrew Graham

Late last year, the Nasdaq hit a new high-water mark, breaking the 9,000-point barrier. Given that it eclipsed 8,000 only about 14 months ago and has already surpassed 9,400 this year, it would seem reasonable to ask when the index will top 10,000.

After all, these are the sorts of things that excite financial networks and drive discussion among talking heads. In truth, though, the Nasdaq is just a benchmark, and the value of the Nasdaq on any given day tells us a small part of the overall story.

[See: How to Pick Stocks: 7 Things You Should Know.]

So, as opposed to pondering arbitrary thresholds, let's focus on which tech stocks within these three areas that are positioned to do well in the market in 2020 and why:

-- Semiconductors

-- Software

-- Beyond Tech

Semiconductors

With many investors remaining bullish on equities heading into the remainder of this year, there's very little question that tech stocks will play an important role in nearly every investment portfolio, whether it's mom - and - pop investors or large, institutional funds.

Drilling down further, however, semiconductor stocks perhaps offer the highest potential upside, even as they have experienced turbulence to kick off the year.

Pay special attention to tech stocks that are enabling the emergence of 5G-driven smartphones and tablets. Keep in mind that while some telecom companies began branding "5G-like" technology in 2019, true fifth-generation wireless tech was not widespread enough to take seriously. In 2020, that will change.

True 5G will be much faster and more responsive than 4G wireless, set to facilitate significant advances in everything from smart home devices like refrigerators and door alarms to autonomous vehicles and portable speakers.

This is good news for Qualcomm (ticker: QCOM), a company with strong business fundamentals and a healthy dividend. Others that could benefit include Broadcom ( AVGO), which helps to power much of the cloud industry through its data centers, and Nvidia Corp. ( NVDA), another semiconductor titan that likely has more room to grow despite enjoying a 76% bounce in 2019.

Again, semiconductor stocks were a roller coaster in January, so if that trend were to continue, price drops would signal a buying opportunity.

Software

Throughout much of last year, software stock marched higher in the market, at points becoming overly frothy before enduring a correction in August and September. Even so, a few tech stocks focused on software probably will continue to shine for investors in 2020.

DocuSign ( DOCU) missed expectations in the second quarter due to higher costs and expenses associated with transitioning customers to a new product. But long term, this company both saves other firms money and is relatively immune to market disruptions. Its strength in the electronic signature and document inventory management businesses should allow it to beat expectations and see its share price rise in 2020.

[See: 9 Places to Invest $500 or Less.]

Zoom Video Communications ( ZM) is similarly resilient, with screen sharing and video conferencing a rapidly growing market. Though this tech stock is well off its all-time highs set in July of last year, we look at that as a buying opportunity.

Another factor in Zoom's favor: Its launch came after many of its video conferencing competitors had already come to market, so it has had the advantage of being able to incorporate the latest security measures without having to endure the costly process of shedding legacy software.

Okta ( OKTA) provides one of the best "human authentication" tools for online fraud prevention, with its single sign-on system considered a reliable protection mechanism for both workers and customers. Okta took a hit in the August-September sell -off, though its business fundamentals remain solid. Look for the company to beat expectations in 2020.

Beyond Tech

Investors focused on tech stocks need to keep the big picture in perspective, and few things are bigger than the looming 2020 U.S. presidential election, which is bound to benefit Facebook ( FB) and Google's ( GOOG, GOOGL) internet ad platforms.

But also consider the likes of Comcast Corp. ( CMCSA) and Walt Disney Co. ( DIS), both of which have broadcast agreements with leagues like the NFL or events like the Summer Olympics that will attract millions of eyeballs -- and ad dollars -- as the election nears.

Further, more than a decade into the bull market, value stocks are much more likely to overperform than growth stocks -- which will continue to do well but align with global economic performance more closely.

There are a couple of reasons for this. For one, value stocks are at their cheapest level relative to growth in more than 35 years. For another, continued low interest rates and other accommodative measures around the world have allayed fears of a global recession.

Finally, energy could also do well, with more than a handful of viable companies within that sector trading at a fraction of their book value. Moreover, U.S. exploration and production companies have recently shifted their focus away from large-scale production growth in an effort to free up cash flow.

[See: 5 Ways to Invest in Real Estate Without Much Money.]

The bottom line: Keep your tech stocks in 2020, especially semiconductors. But there will be other areas to make investment hay as the year plays out.



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