What is a good technology investment?
I have been a successful technology investor for 30 years. In that time, I’ve seen technology trends come and go.
And while tech stocks can make you insanely rich…
A poor stock selection can end up in significant losses very quickly.
Especially in today’s volatile markets.
Are Technology stocks a good Investment
There is one rule that I follow when I invest in technology, and it has served me throughout my career…
And today I am going to share my secret to success in tech stock picking…
Thirty years ago, investors like you and I could barely scratch the surface of the stock market.
If you wanted to invest in a small company with a big idea for the world, you had to call your broker to do the deal.
And the trading fees were huge.
Doing your homework on these companies at that time was even more difficult, without the Internet.
Today, researching and trading are as easy as pressing a button twice.
But even then, my ruler made it easy for me to choose the right actions…
I only invest in companies I believe in.
Companies that make the world a better place.
And I’m doing well doing good.
I know it sounds simple, but it’s a powerful thing.
And thanks to technology, it’s easier than ever to invest in innovative companies.
Think of all the things that have changed the world and in which you can invest today…
Space technology has created items like baby formula, implants, and artificial limbs.
In addition, companies like Starlink are delivering on their promise to bring broadband to parts of the world where there is no other connection. And the space program was revived with the launch of SpaceX’s Dragon ship.
Electric vehicle companies are creating a cleaner, cheaper way to travel. And to go even further, Tesla and other companies are using their battery technology to bring backup power to places like Australia, which have had serious problems with fluctuating power outages.
And, as if that were not enough, we are seeing what technology companies have done in the wake of COVID-19, specifically biotechnology.
In the face of this adversity, we not only have a vaccine that works, but almost half a dozen.
With this too, Moderna and Pfizer have cracked the code for two vaccines that are unlike anything we’ve developed so far in human history.
Their mRNA vaccine technologies have the potential to be applied to other debilitating diseases…
Even for cancer cells targeting patients.
Technology is still the best place to put money because it gives you the opportunity to do this kind of good for the world.
And when good is done, the markets react overwhelmingly positively to the results.
Moderna shares, for example, at the start of 2020 were around $20.
By the end of that year, it had reached over $150 and would even hit $480 in early August.
So when it comes to finding these companies, that’s where I come in to help.
Not everyone who invests has the time or effort to do their homework by researching each and every one of these companies.
You can search for interviews on the web, look at their balance sheets or base yourself on what other commentators say.
But at the moment of truth, the key is in the product that they deliver in the end.
And with me, you get an on-the-ground approach to finding out if these companies are legitimate.
My approach is to interview people when I can, do my own research and, if necessary, go to the companies themselves to visit the facilities and see them for myself.
If I invest in a company, I want to believe in what it does.
I want to believe that they will do what is best for the world around them.
And if I can earn some money along the way, even better.
It is my approach, and it has given me results all these years. Why not start applying it too, with your own tech investments?
What Are The Technology Skills
Is it a good time to invest in technology companies?
How do technology companies grow profits? Is it a good time to invest in them? At our 20th Anniversary Stock Exchange Forum, Ramón Forcada, Director of Analysis and Markets at Bankinter, spoke to us about the technology sector and how the profits of the Nasdaq 100 are growing.
Is it a good time to invest in technology companies?
According to Ramón Forcada, today what is really working in technology. “Technology is not companies that lose a lot of money and that are a bet to see what happens and that out of ten 2 survive”. This happened a few years ago, but it doesn’t happen anymore.
It is important to note that, according to the market consensus, the Nasdaq 100 in 2020 will see only two companies that have losses.
Technology companies are profit companies. We call them technological, but they are new ways of doing things to which we have all been adapting without realizing it. It is the way to order a taxi, order food, get theater tickets, etc.
If we compare the evolution of the Earnings per share (EPS) in the companies of the S&P 500 to the Nasdaq-100, in the accumulated 10 years, the Nasdaq companies have made 182.8% more in profits.
Key Factors for Selecting Technology Stocks
In the 2020 Technology Sector Report, the analysis department shared the aspects to look for when selecting companies to invest in the technology sector:
1. Attractive multiples
Attractive multiples (and always adjusted for growth).
2. Proven successful business model
Proven successful business model with the capacity to innovate or diversify into new areas.
3. Competitive advantage
The situation of competitive advantage allows you to create entry barriers for new entrants. Either because of its exclusivity and/or difficulty to replicate or because the economies of scale due to size make it difficult for a new competitor to reach profitability.
4. Companies without losses
We would be out of companies that are in losses (both in current figures and in future perspectives). No matter how high the growth in customers or even in income, we consider business models that still do not generate positive flows to be too risky.
5. Larger technology companies
Lastly, and although we do not consider it a determining factor, we will focus the investment focus on the largest companies. not only because of its greater ability to face competition and better resist crises but also because of its weight in the indices.
The 5 FAANG+Microsoft represent more than 50% of the Nasdaq-100 capitalization, and therefore any fund or manager that replicates the behavior of this index must have them in its portfolio.
Tech Stock Outlook According to ODDO BHF
In recent days, technology stocks have seen big moves. So, the fundamental and growth prospects have arguably never been better for tech companies.
But there are headwinds: the end of lockdowns on companies benefiting from them, rising inflation/interest rates, and lofty valuations. Oddo BHF analyzes the prospects of this sector for 2022.
The Nasdaq and technology stocks, in general, have performed well during the pandemic. After a stellar 2020, 2021 has been more difficult as some tech stocks saw sharp declines while others continued to rise.
Arguably, the fundamental and growth prospects have never been better for tech companies. But there are headwinds: the end of lockdowns on companies benefiting from them, rising inflation/interest rates, and lofty valuations.
What has driven the performance of technology stocks / the IT sector in recent years?
With above-average earnings growth and multiples expanding, IT has been the best-performing sector for the past five to ten years. In 2020, the rise in returns even accelerated as tech stocks quickly rebounded from COVID declines, many reaching new all-time highs.
While some companies (for example, Zoom, Amazon, or Shopify) benefited from the closures, others demonstrated their defensive qualities by offering steady growth even in difficult times.
Cyclical IT stocks (eg semiconductors or IT services) suffered early but benefited in 2021 due to the strong post-pandemic rebound in the global economy.
In 2021, the information technology sector underperformed the general index by a few percentage points. But the real story has been the huge divergence in returns.
It has been a difficult year for those companies that benefited from the lockdowns, as slowing growth rates, combined with very expensive valuations, have led to large declines. “Hypergrowth” companies also mostly fell after the market started pricing in inflation and higher interest rates.
However, most of the companies in this category are still doing quite well. Payment service providers performed quite poorly (eg Paypal -18% in 2021, Visa +1%).
the reasons were the normalization of e-commerce demand and negative sentiment about the sector due to fears of fintech disruptions.
Semiconductor companies continued to perform well, helped by both structural aspects (digitalization) and cyclical aspects (strong rebound in the world economy).
So-called “quality growth” stocks fared quite well, especially in the second half of 2021. Many investors viewed companies like Alphabet, Microsoft, or Accenture as safe stocks with still reasonable valuations compared to other tech names.
Forecast for 2022
Slower growth and higher (real) interest rates are the two main risks for the technology sector in 2022. A slowdown in the economy would weigh on cyclical companies, for example, most semiconductor companies.
Some parts of the sector are probably already mature (for example, components for personal computers and smartphones), while others, such as automotive chips, still offer upturn potential.
With post-pandemic normalization continuing, “lockdown winners” and “hypergrowth” companies also remain at risk. Although valuations have already fallen, the rise in interest rates, anticipated by most market observers,
In recent months, there has been a clear correlation between rising rates and poor returns on highly valued stocks, which is likely to continue if rates continue to rise.
There is also some risk of spillovers across the quality growth spectrum, especially to large-cap tech stocks that have done well in 2021. Valuations here are still somewhat reasonable, but also higher than in the past.
With pandemic-accelerated structural growth prospects and generally high quality (eg, software with a high proportion of recurring revenue, strong balance sheets, and strong economic moats), technology stocks continue to offer good long-term opportunities for us. It is essential to weigh the opportunities and risks of the technology sector.
The best strategy is to stick with high-quality stocks with good structural growth opportunities, low risk of slowing growth, and still reasonable valuation.
These stocks may underperform in the short term if interest rates rise faster than expected, but growth will offset this in the long term.
The manager continues to recommend being cautious with high-growth stocks in general, as valuations remain above the long-term average for most of them.
Additionally, many of them will show post-pandemic normalization growth rates in 2022. Once valuations are less extreme, these companies could become interesting again, but we’re not there yet. In the case of cyclic names, the cycle must be taken into account.
Especially for semiconductors, profitability typically fluctuates a quarter or two before growth rates peak.
Additionally, automotive and data center companies continue to look very attractive, with growth accelerating in 2022, while others could peak this year (spending on semiconductor equipment, PC demand, etc.).
Finally, ODDO BHF believes that companies without proven profitability are best avoided, especially if competition is high. These types of companies tend to underperform when the monetary environment tightens.
TECH COMPANIES TO INVEST WITH GREAT DIVIDENDS
Not surprisingly, technology stocks are one of the favorite plays for mutual fund managers.
In fact, the Polar Capital Global Technology Fund (global technology equity fund brought to us by manager Fidelity) is offering a three-year annualized return of no less than 19.71% (kudos to Nick Evans, manager).
Technology is a sector with an innovative ingredient that always makes it attractive.
But keep in mind that this same factor makes it a very volatile investment.
Premises for investing in technology companies
There are two premises that we must not forget when investing in technology companies:
- The application of technology.
- Expansion of the business cycle.
The application of technology
Technology has a use, and depending on the user assigned to it, as well as its acceptance by society and the market, the technology company will succeed or fail.
This can be seen very clearly in the examples of highly successful technological applications, such as the computerization of homes and businesses, mobile telephony, telecommunications via the Internet, the health sector, etc…
However, there have been many products and technological applications that have failed.
There is a high risk in this regard.
Expansion in the business cycle
It is important to look at the economic cycle when choosing an economic sector in which to invest, not all react in the same way to a certain phase.
However, technology is a sector that is particularly sensitive to cycles. When economic conditions are favorable (especially in the United States), innovation is favored and this type of company becomes very attractive.
A good way to figure out the best times to start looking for the best tech companies is when interest rates are rising. This is a sign that the economy is in good health.
Tech companies and dividends
Technology is a high-growth sector due to the innovation factor that we mentioned a few lines above. A technology company that does not allocate resources to innovation may soon find itself obsolete.
In fact, there are industrial sectors that were once considered technological.
This affirmation pronounced in the previous paragraph hides two conditions to take into account:
- The need to constantly innovate makes them a sector with little capacity to offer good dividends.
- Because they are high-growth companies, they are volatile and must be sustained through diversification in more stable values so that the investment can be maintained in the long term.
Tech companies have enormous growth potential, but they also have many risks and weaknesses. For this reason, it is necessary to diversify them in an adequate way.
There are securities in this sector that have become institutions that cannot be missing from the portfolios of anyone who intends to invest in technology.
We could consider these companies as the most stable in the sector (that of the stable we could leave it in “relatively stable”, better said, they would be “the most sustainable within an unstable sector by nature”).
Now, why does a company, such as Facebook or Nokia, become an industry leader?
The answer, once again, lies in constant innovation.
Due to the pace at which technologies advance, a company with these characteristics is forced to continuously offer new products to the market. See the case of Apple, for example.
A company, under these circumstances, only has two options:
- Go into debt to promote R+D+ie innovate.
- Financing with own resources.
Given that the first option can pose a financial problem (and much more so due to the risk of not accepting a new product in the market), logically, a company that is forced to innovate will choose to finance itself in order to have a good tone. physical (allow me the simile).
This leads us to the conclusion that a large part of its profits goes to reserves to achieve this end; which produces that the dividends paid to the shareholder suffer.
So it is not surprising that the technology sector offers lower dividends than other industries.
But, despite not offering an attractive dividend, many of these companies are cash-rich, have strong investment capacity, and command strong balance sheet positions. For this reason, they are considered the most sustainable in the sector.
However, there are also technology stocks capable of offering higher dividend yields. It is precisely what we are going to assess in this article.
We will not only cover the most interesting characteristics of the great technological stocks, but we will also look at the companies in which to invest with great dividends (relative to this sector).
Supported by a tangential strategy (which we will deal with later) and diversifying between these three types, we will have a perfect formula for investments in technology companies.
Tech companies with big (and not so big) dividends
Next, we will analyze each of the companies with the most interesting dividends.
Take it only as a reference, since as we mentioned before, the high volatility of this market causes conditions to vary rapidly.
It has a forecast annual dividend yield of 1.51%. As we said, it is not a great return, but it is a strong company in the sector. It does not stop offering products to the market, all of them with great acceptance.
Your brand image has become a symbol of quality, so your products can bring great sales figures. This translates into a constant cycle of “innovation, sale, profits, dividends, and growth”.
Another of the great technology companies.
We believe that even words are not enough to describe it. Its expected annual dividend yield reaches 1.68%. It is considered one of the star values, those that add a lot to the portfolio.
Generally speaking, Microsoft shares behave similarly to its benchmark index (NASDAQ). So general market conditions can be a good indicator of overweight or underweight stock.
This company develops, manufactures, markets, and implements billing and customer service software solutions for communications providers (it has multiple revenue streams).
The shares of this company have an annual dividend yield forecast of 13.45%. The highest in the technology sector. But beware, we must compare this return with what has been said so far and diversify into values with better capitalization (such as those seen above).
Here is an example of a large-cap technology company, which can offer an annual dividend yield of 3.20% (according to forecasts).
The mobile phone market is one of the most popular and profitable. We have already verified this with Apple. But this Korean group, with subsidiaries all over the planet, also focuses on the manufacture and sale of electronic components, as well as computer equipment.
Wayside Technology Group
Another NASDAQ stock with a good dividend yield. Nothing less than an annual forecast of 5.56%.
It is an information technology channel company. It distributes software that has previously been developed by others. This tells us that it has no manufacturing costs and, therefore, innovation.
Tangential strategies with technological values
Once we have dealt with some examples of what would be the best technology companies to invest in with large dividends and supported by other more sustainable companies in the same sector (for reasons of correct portfolio diversification), we still have an important issue to deal with which will give us a good foundation to build a portfolio of technology stocks:
A tangential investment is one that is directed to a different focus but linked (tangential) to the investment opportunity itself, and that may be a beneficiary of it.
A practical example of tangential strategy in the technology sector
Let’s take a clear example, also referring to investments in technology:
Suppose, the health sector, is benefiting from technological advances (this is a reality). This sector is a great consumer of applied technology, so any improvement in it will increase its productivity; after productivity sales and with sales profits, dividends, and, finally, growth.
Therefore, if we detect a technology company that is developing products for a specific industry, a tangential strategy aims to invest, not in technology directly, but rather in the recipient of that technology. That is the beneficiary sector of it.
The same could be done in reverse. If we detect a booming sector, we could focus our attention on technology companies that offer products applied to that particular industry.
Without a doubt, these products will be in demand and the technology company will experience growth.
This would be a tangential investment strategy with technology companies.
Combining in a portfolio:
- Large-cap technology stocks (even if their dividends are not very attractive);
- Plus others with potential growth (although they present a higher risk);
- Plus others that offer great dividends (without losing sight of their financial situation and their debt ratios);
- And topping off the operation with tangential investments in applied technologies (health would be a good example)…
… we will have a perfect combination to tackle this sector.
This response to the good results that the equity investment funds of the technology sector are obtaining, added to the good economic moment that, without a doubt, supports this industry.
Thanks to investment funds, the explained combination of the different types of securities to invest in technology companies with large dividends, without exposing ourselves too much to the risk typical of this sector, is not a pipe dream.
A professional manager (such as Nick Evans of the Polar Capital Global Technology Fund seen at the beginning of this article) makes it possible.
5 technological investments that every company must have
Currently, it is very important to automate processes in your organization regardless of the size or line of business.
Now, what are the technology investments that you should apply to it? The answer is related to the needs of your company, so it is essential to take the time to evaluate the best options.
Recent studies have shown that most companies lose billions of dollars each year by buying the wrong technologies.
To prevent this from happening, the best way to avoid unnecessary expenses is to ask yourself: What kind of technology does our company need? How many employees will use it? How will it benefit us? What are the cheapest options on the market?
By answering this and delving into specific needs, you will have a better result and better optimize your resources.
1. Payroll Software
The payroll process does not have to be tedious and manual. Fortunately, there are already companies that help automate this task.
Have you ever imagined that the process of paying your employees’ payroll takes only 15 minutes and from home? Runa RH is revolutionizing payroll in Mexico.
It is the leading automated payroll platform serving small and medium-sized businesses and is hosted in the cloud.
With this platform, anyone, with or without payroll experience, can pay their employees in just 15 minutes thanks to information automation.
This software has five additional modules outside of payroll including Employee Management, Attendance Tracking, Vacation Tracking, Performance Management, and Reporting, allowing you to better manage your human resources on a single platform. In addition to having an assistance app.
2. Software de Marketing Automation
The marketing automation industry has grown exponentially in recent years.
The objective of a technological investment like this is to help the marketing, sales, and customer service departments automate repetitive and manual tasks, such as recording actions on the website, creating landing pages, and capturing leads or prospects. sales through pop-ups, etc.
For this reason, marketing leaders encourage using at least one marketing automation platform for its multiple benefits.
The rapid growth of Internet-connected devices has increased the concern of companies about how to keep their data safe.
For this reason, another of the technology investments that you must make in your company has to do with cyber security equipment, since companies receive cyber attacks with the aim of accessing, modifying, or destroying sensitive information, extorting users, or interrupting processes. normal business.
Did you know that Mexico is behind the United States and the United Kingdom as the country that receives the most cyberattacks?
7 out of 10 Mexican companies have experienced an incident related to computer security, which is why the National Institute of Transparency, Access to Information and Protection of Personal Data ( INAI ) imposed fines of more than 185 million pesos.
In this sense, it becomes necessary to invest in cybersecurity technology that protects the company’s data at all times.
4. Hardware Update
Another technological investment that you must make in your company is the updating of the equipment, and adapting it to the new technological demands.
Modern tools provide seamless integrations with existing software so businesses can embrace automation.
This category includes computers, laptops, printers, server hardware, and related technology such as routers, firewalls, wireless networks, and more.
5. Enterprise Purchasing SaaS
A SaaS (for its acronym in English, Software as a Service ) is an application in which a provider deals with the hosting of said software in the cloud, that is, it allows you to use it from anywhere without the need to install it any program.
Having access to the latest and greatest technologies, this tool will allow you to grow and achieve more with fewer resources.