Smart Investing Bet: With markets continuing to slide and the tech sector bearing the worst of the damage, what opportunities could allow you to take full advantage of an eventual rebound? Here are three technology stocks to consider putting $1,000 into and holding for the long haul.
Google parent company Alphabet (NASDAQ:GOOGL) has sold off over 20 percent this year, and is now perched at an attractive valuation.
Alphabet currently trades at a P/E ratio of 20.21, its lowest level since 2012. The company is financially secure with a debt-to-equity ratio of just 0.06 and billions in free cash flow every quarter.
Despite getting caught up in the general tech selloff, Alphabet is still reporting strong performance.
In Q1, revenue rose by 23 percent year-over-year. While this number did miss analyst expectations, it was still an impressive level of growth.
EPS was off by 6.4 percent from the previous year, but faster-than-expected growth in the Google Cloud segment offered investors the promise of a new and potentially very lucrative business line coming into its own over the next few years.
Over the next 12 months, Alphabet has strong upside potential. The median target price from 45 analyst forecasts is $3,175, 42.2 percent above the current price of $2,232.91. The lowest price target of $2,636 still gives Alphabet an 18.6 percent return, considerably above the historical average of the S&P 500.
In the short run, Alphabet could face some minor challenges. The onset of a recession, for instance, could pare its advertising revenues. Competition from newer platforms could also challenge some of Alphabet’s segments, as in the case of TikTok challenging YouTube.
On the whole, though, it appears that Alphabet’s overall business remains strong. Advertising revenue is still growing, and cloud computing should unlock further value for the company and its shareholders.
Alphabet has also sold off drastically despite few real challenges to its long-term business prospects. In this sense, Alphabet is both a growth and a value play.
Planet Labs (NYSE:PL), also known as Planet.com, is an Earth-imaging business that operates a fleet of small satellites that image the entire planet each day. Thanks to its vast library of images, Planet Labs has an effective moat around its data that competitors would find very costly to breach.
From a business perspective, there’s a great deal to like in Planet Labs. The company’s customers pay a subscription fee for access to its image library, creating a scalable source of recurring revenue. Thanks to this model, direct margins on subscription income exceed 90 percent, as the underlying cost of operating the satellites remains the same regardless of subscriber count.
Over the next 12 months, Planet Labs’ upside potential could be enormous. If it achieves the median analyst target price of $10, the stock would gain 130.9 percent over its most recent price. Clearly, this gives the company ample room to underperform expectations and still generate excellent returns for shareholders.
The real value of Planet Labs, however, is on a much longer time horizon. The company is building a large and valuable client base, including a recent contract with the National Reconnaissance Office.
It is also planning to introduce new analytics tools that could make it easier for subscribers to gain insights from the Planet Labs data library.
Because it is an extremely young company, the future of Planet Labs is far from certain. The company has built an enormously valuable dataset of images that competitors cannot replicate, but it still has a long way to go before it reaches its full potential.
For investors who are willing to endure the volatility associated with smaller, yet-to-be-proven companies and hold for the long-term, though, Planet Labs could produce extraordinary returns.
Cloud computing has been one of the hottest areas of business in the last few years, and Veeva Systems (NYSE:VEEV) is a solid play on this lucrative new technology. Veeva provides cloud-based software solutions for pharmaceutical and other biomedical companies. As of Q1, Veeva had some 1,200 customers in this highly specialized niche.
Veeva is unlikely to deliver exponential growth, but it has proven itself quite capable of producing steady, reliable increases in revenue and earnings.
In Q1, the company reported year-over-year revenue growth of 16 percent and delivered earnings of $0.99 per share against expectations of $0.92.
Veeva Systems has a much lower 12-month projected upside than Planet Labs or Alphabet. At the median price target of $228.50, the stock would gain a respectable but unremarkable 15.4 percent against its current price of $198.03. This is much more in line with Veeva’s slow but steady growth trajectory.
Veeva’s revenues are expected to grow at about 17 percent for the next two years, though ongoing research and development efforts could send them higher in future years.
Overall, Veeva is likely a good option for building steady, reliable growth into a portfolio. Because it faces very little competition within its niche market, Veeva should continue to prosper along with the life sciences companies it serves.
How These Stocks Work Together in a Portfolio
As you can see, each of these technology stocks has a solid investment thesis behind it. Investing an equal amount into each one, though, could help investors pursue multiple goals with a relatively simple technology portfolio.
Planet Labs offers the possibility for outsized rewards, albeit at considerable levels of risk.
Veeva balances this by providing a slower and more steady growth approach that still has the potential for decent returns down the line.
Sitting between the two from a reward to risk perspective is Alphabet, a play on an already dominant tech company that is likely undervalued and will almost certainly continue to grow at a healthy pace going forward.
The author has no position in any of the stocks mentioned. Financhill has a disclosure policy. This post may contain affiliate links or links from our sponsors.