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Over the past few weeks I have written several Money and Markets articles to alert you to the amazing opportunities that are out there right now in technology stocks. A whole new crop of talented, inspired entrepreneurs — motivated by the success stories of those companies like Apple, Google and Amazon that came before — are right now creating new businesses, and in some cases whole new sub-sectors.
They are hard at work and dreaming big to discover innovative ways to combine mobile, healthcare, internet and communications technologies, and integrate them into new products and services you haven’t even dreamed of yet … but someday you won’t be able to live without.
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| A new crop of fast-growing technology companies are about to create newfound riches for shareholders. |
And the new crop of young, hungry and fast-growing technology companies they’re founding are about to create newfound riches for shareholders too.
I have received hundreds of terrific questions and comments from Money and Markets readers over the past few weeks. And in today’s article, I intend to highlight some of the most intriguing questions, and give you my best answers. So lets’ get started.
There were several questions about technology stocks of yesteryear, and although I’m more focused on the technology superstars of tomorrow, I also recognize that many of you may already be invested in larger cap technology stocks for dividends and turnaround potential. So here’s my take on a few of them:
Jim B. asks:
What are your thoughts on Microsoft (MSFT), now that they have a new president? Will Gates and Ballmer let him control MSFT? Will MSFT develop a vision for the future and turn loose the creative juices of those 80,000 employees?
Jon responds:
Microsoft will be better under its new management. But it is already a very large company and does not have a massive growth path ahead. It will act like a nice, solid utility, fairly slow growing with a decent dividend. Not a horror show, but nothing special.
Gary B. wants to know:
What is your opinion of Cisco Systems (CSCO) and Microsoft (MSFT)?
Jon answers:
Cisco Systems needs new leadership; it will go up when the board replaces CEO John Chambers.
Microsoft is not too exciting. It’s not a lost cause, but there is just not much in their portfolio at present that is likely to move the needle. In a company that big, new product cycles have to be massive to make a difference. Otherwise the company just lumbers along like a utility, making a lot of money but not with the kind of growth that investors pay up for.
Steve asks:
What is your opinion on Apple (AAPL), is it time to buy?
My reply:
Apple is just another big industrial technology/retailing stock now. Its best days of growth are most likely in the rear view mirror. That’s not to say it won’t make some decent products, but the growth rate for now is paltry and innovation appears to have ground to a halt. They have given up a lot of their momentum and market share. I own it but I have low expectations.
There are several great questions about the right approach and time horizon you need to have in mind when it comes to investing in technology stocks …
Domenic asked:
If a person were going to make an investment in a tech stock with the hopes of something extraordinary in say 2 to 6 years, what stock might that person consider?
My response:
I will be talking about some emerging technology companies with lots of potential, but I would not focus on just one. Most people should diversify and have five to ten or more of them.
Josh inquires:
If you could build a concentrated, go-for-broke-type of tech portfolio near-term performance of your five best emerging high growth favorites, what would they be?
Jon’s comment:
The market gods don’t like us to think of time frames in which we just have to have a certain level of performance with a certain number of positions. Each stock is going to have its own time horizon based on its business, customers and the environment. Don’t get sucked into the “instant gratification” or speed game.
Here is a grab-bag of technology Q&A including some tech-superstars of tomorrow that are among my favorites right now, and which stocks and sub-sectors to avoid now too …
Herman R. wants to know:
What are your top three tech companies to get in on the ground floor?
My reply:
Almost all of the stocks that I have been discussing may look as if they are up a lot, but they are still in the early innings. It is sort of like saying, “Wow, Dell is up 1,000% in 1995, that must be it” — and then it goes up another 10,000% over the next few years.
In addition to the stocks I mentioned already: ExamWorks (EXAM), Splunk (SPLK), and NXP Semiconductors (NXPI) — there will be more to come, and I’ll be discussing them all in detail at the appropriate time.
Allen asks:
What is likely the best tech ETF to hold?
Jon
There are plenty of great technology ETFs tracking the various sub-sectors of the tech industry, including biotech and medical technology (don’t forget those). But one of my favorites is First Trust Tech Alphadex ETF (FXL), but another one that also includes biotechs is just golden-oldie Nasdaq 100 Trust (QQQ).
From Brian:
How do you feel about investing in 3D printing? I am reading that DDD, DASTY and SSSYS are the top companies. Your thoughts?
Jon
3D printing has a bright future but most of these companies are very overvalued and they just aren’t producing enough revenue yet to match their stock prices. 3D printing is mostly a game show for now. It’s not a big market yet, though it has potential to be as time goes on.
From William:
Jon, still waiting to find out about the “chips or devices that allow machines to talk to each other and have intelligence.”
Reply
One of the main chip makers in that space is NXP Semiconductor (NXPI). I have been recommending it since September 2012 at $26, but it is pretty overbought now above $57 a share, and I would wait for it to simmer down a bit.
A lot of people seem to have just discovered it. Just be patient and wait for it to at least pull back to its 50-day moving average. That would be around $51 if it happened now, but could be higher if it happens later in the year.
Alan Q. asks:
What cloud computing stocks do you recommend?
Jon Markman
I’ve been talking about and investing in cloud-computing stocks for a long time, and what’s kind of interesting is that the term today is so broad that it’s almost meaningless.
In a way, the cloud has basically taken over as a paradigm for offsite data storage and retrieval, so it can encompass everything from Google (GOOG) and Dropbox to datacenter companies like CoreSite Realty (COR) and InterXion (INXN).
I prefer to focus more on the “software as a service” stocks that are largely based in the cloud as they have more individuality and higher profit margins. I’m talking about stocks like WorkDay (WDAY), Salesforce.com (CRM), Benefitfocus (BNFT) etc.
But there are many, many more which we will discuss in coming weeks and months.
Here are a couple questions about medical-technology stocks and biotechnology, two sectors where I’m also finding plenty of stocks with outstanding upside potential  …
Carl comments:
Frankly I do not understand tech stocks very well. Yes, it does seem that tech and biotech are the areas that see explosive growth, but finding the right ones is tough. Need to find a way to separate the good from the bad.
I’m wondering if there is a sensible formula to follow?
Jon replies:
Your comment about biotech is very apropos. For a long time, I stayed away from them because I am a sucker for a good story. And they all have great stories.
They are all going to cure cancer, or hepatitis, or AIDS, or whatever. But the reality is that very few will get their therapies or molecules through the FDA, and even if they do, it can be hard to get good distribution quickly.
For that reason I tend to focus more on biotechs that have already been successful with at least one molecule or drug or treatment — or even better — companies whose main drug or therapy or device has already been cleared by the FDA. This takes away a lot of the risk.
Yes, you will give up some upside, but you will also avoid a lot of downside. And there are plenty of companies in the category that I just mentioned, such as Pacira Pharmaceuticals (PCRX), which has an approved treatment for post-operative pain and is now building out its sales force to get its products into as many hospitals as possible.
From George:
We agree with your research & core thesis on Robots. The big question: What are the three best companies that have a decent chance for stellar success?
Jon
At the end of the day, most robots are just industrial machinery with a little more software. They do repetitive tasks. They are really not much more interesting than other industrial equipment. In fact, some of the best robotic plays are the companies that make the best use of them in an effort to get production efficiency.
Some of the most interesting in the space are used in medical applications like surgery, and are not actually robots but finely tuned, precision machines that enhance the ability of surgeons to perform their work.
My favorites in the space now include: Cognex (CGNX) and Intuitive Surgical (ISRG). I also like John Bean Tech (JBT) for its Automated Guided Vehicle division, and Rockwell Automation (ROK).
I’m not recommending any of these right now; I’m just telling you to keep an eye on them. My specialty is young emerging tech stocks just a few months or a couple years post-IPO, so I will be writing about some of them in the very near future.
And finally, there are quite a few readers who are eager to get started uncovering the technology superstars of tomorrow …
Ken asks:
Jon, I thoroughly enjoy reading your columns. However, I was led to believe that you would be making buy recommendations on certain stocks. So far nothing?
Jon responds:
Ken, thanks — glad you like the articles.
I am chomping at the bit to deliver some new ideas and specific buy recommendations. I have plenty of them in mind, and will have more as time goes on. But first I thought you would like a bit of an introduction to my investment style and thought process: what I look for in a potential technology superstar of tomorrow.
Rest assured, when the time is right, I will get down to the nitty-gritty: specific recommendations of new technology hot-shot stocks — some well known, many still unknown — that will help us grow our fortunes together.
Until then, just enjoy the conversation. And by the way, even now a lot of the already successful stocks I have mentioned in the past few weeks, like NXP Semiconductor (NXPI), Splunk (SPLK) and Pacira Pharma (PCRX), appear to be consolidating and preparing to move higher again.
From Lew:
Jon, for several weeks now you have been telling us about your past successes. When can we look for some recommendations?
Jon
Hi Lew — most of the stocks I have been talking about are not really “past successes.” They are stocks I have recommended in the past few months and still recommend!
There will be many more new recommendations coming soon as well, but you’ll have to be patient. Most of my best ideas are companies that have gone public recently and the pipeline for the best stocks is pretty narrow. But some are percolating now and will be ready for takeoff soon.
Bottom line: So many incredible companies are being created now to build communications apps, marketing tools, social media connectivity, games, search engines, photo-sharing platforms and analytics services that you scarcely know where to begin as an investor. Thank you for joining in this conversation and for all of the terrific feedback. This is truly the best time to be an investor in technology that I have seen in my 35-year career. And I’m so glad you’re along for the ride!
Best wishes,
Jon Markman
P.S. Want to talk tech stocks? Here’s your chance to ask me anything you like about technology stocks: Simply click this link to jump over to the Money and Markets blog. I’ll check in during the day and give you my best answers to your questions.
