The 10 best tech stocks to buy for 2020.
The 2010s, among other things, was 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 are all tech stocks. The specter of antitrust regulation is real, but the idea that regulation will bring Silicon Valley to its knees is a fantasy. In another 10 years, technology will play an even larger role in everyday life and markets than it does today, so investors may as well come along for the ride. Without further ado, here are 10 of the best tech stocks to buy for 2020.
Microsoft Corp. (ticker: MSFT)
One of the first trillion-dollar companies on earth, Microsoft is still enjoying the long-term benefits it cemented in the '90s. The Redmond, Washington-based software giant is still one of the best tech stocks to buy for 2020, a quarter-century after Windows 95 introduced millions to personal computers. That proves MSFT has longevity, but the company has also 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 up 59% last quarter.
Dell Technologies (DELL)
Another well-known business from the 1990s 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: it has tentacles in the data center, storage, servers and the cloud – a diversified portfolio of modestly growing business units. Its commercial PC business has been picking up steam recently, driving operating income growth of 65% last quarter in the client solutions group. Most importantly, Dell acquired a roughly 80% stake in VMWare (VMW) in 2018, which is valued at $60 billion. Dell’s stake is worth about $48 billion, yet trades at a $36 billion valuation. Trading for just 9 times earnings, eventually Wall Street will realize this dramatic mispricing.
For a second consecutive year, application software giant Adobe makes the cut as one of U.S. News’ best tech stocks to buy. Through December, ADBE stock is up 35% 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 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. At $150 billion, ADBE is still growing sales by about 20% a year. Keep in mind, ADBE might not insulate you from short-term volatility like the best blue-chip stocks can, but tech stocks simply tend to be higher risk, higher reward.
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 at 10.6 times forward earnings and paying a sustainable 5.3% dividend, AT&T brings relative stability to the list of the best tech stocks to buy for 2020. It expects about $28 billion of free cash flow in 2020.
Being one of several tech names on U.S. News’ list of best stocks to buy for 2020, Facebook had to go down as one of the best tech stocks to buy for 2020 as well. It trades for 32 times earnings, but that’s not unreasonable from a company that’s expected to grow profits by 42% next year. Although Facebook boasts roughly 2.5 billion monthly active users, it’s still growing that figure by about 8% annually. Almost 2.8 billion people use either Facebook, WhatsApp, Instagram or Messenger at least once a month. Even if a Democrat were to win in 2020 and push for the breakup of Facebook, investors might still benefit as Wall Street would be better suited to fully value each business segment.
You’ll be forgiven if you haven’t heard of STMicroelectronics, a $22 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 0.45, analysts expect earnings per share to grow 49% annually for the next five years, making its P/E of 22 look like a steal.
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 over $70 billion annually in revenue, still qualifies as an out-an-out growth stock as the closest analogue to Amazon in China. Alibaba’s top line is growing faster than Amazon’s, however, surging 40% last quarter. 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 e-tailing 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.
IAC/Interactive Corp. (IAC)
New York, New York-based IAC is an $18 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 $215 at the time of this writing. Management’s bold and rewarding philosophy has resulted in the cultivation and spin-off of companies like Expedia (EXPE), Lendingtree (TREE) and Live Nation (LYV). The next to be spun off is online dating giant Match Group (MTCH), which IAC owns over 80% of. IAC’s stake in MTCH and ANGI Homeservices (ANGI) alone is worth more than all of IAC at current valuations. That implies IAC holdings and fast-growing media companies Vimeo and Dotdash are worth less than nothing, which can’t be true. This leaves an arbitrage opportunity for 2020.
While it doesn’t get the ink that a company like Alibaba does, Chinese online classified company 58.com also makes the cut as one of the best tech stocks to buy for 2020. In fact, being less in the spotlight may be one reason WUBA appears overlooked at a lowly PEG ratio of 0.7. Sometimes colloquially called “China’s Craigslist,” WUBA is expected to grow sales in the mid-teens going forward as China’s rising middle class continues to boost demand for jobs, goods, real estate and other services. Should President Donald Trump lift the trade war in 2020 in an effort to boost the economy, WUBA’s stock and underlying business itself should benefit.
The Rubicon Project (RUBI)
Last and absolutely least by market cap is the $400 million Rubicon Project, a volatile yet promising stock in the digital advertising space. The company’s software helps automate the buying and selling of online advertising en masse, over both mobile applications and the wider web. Programmatic advertising is only gaining ground, and RUBI is benefitting, going from declining sales in 2018 to what looks to be upwards of 20% growth in 2019. RUBI hasn’t been profitable historically, but analysts expect it to break into the black in 2020 and then grow earnings extremely rapidly in 2021. RUBI likely has the highest risk-reward on this list, so it’s not ideal for blue-chip investors.
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 (RUBI)