Tech Stocks to Look After in 2020
Do not let fears of an overvalued market topple your equity allocation heading in 2020. In fact 2019’s remarkable gains from stocks, with the S&P 500 delivering gains north of 28%, may very well prevail. The bull run will be led by the Tech Industry which, contrary to popular belief, may just be getting started.
High Price to Earnings (P/E) and extensive past growth would seem to undermine the future growth potential in Big Tech. Apple (NASDAQ:AAPL) recorded an 80% growth in its stock price in 2019, and currently trades at a P/E ratio of 27, meaning investors are willing to pay 27 dollars for $1 of earnings. There are several key factors, however, to support additional growth in the industry. The race to 5G, cloud computing, as well as extensive spending when it comes to Artificial Intelligence and Virtual Reality are major contributors of growth and more importantly increased share prices. Investors worried about their capital in the case of an economic downturn should be pleased with gold standard fundamentals in Big Tech Company Performance.
Whether you are restructuring your portfolio or considering entering the market, here is an overview of the Tech stocks to look for in 2020.
The more conservative approach for our risk averse investors would be to focus on the industry’s behemoths. Commonly known FAAMG stocks are the most equipped to capitalize on new trends, with strong balance sheets and a wide global outreach. From cloud computing, Microsoft (NASDAQ: MSFT) dominating the space with its secured $10 billion Pentagon contract, to data processing, these stocks will reap the benefits. Unfortunately, a hefty share price might steer you away. Not to worry however, as an array of Exchanged Traded Funds (ETF) tracking big Tech stocks are available at relatively low prices. ETFs such as the Technology Select Sector SPDR Fund (NYSE:XLK), or the Cloud Computing ETF (NASDAQ: CLOU) will grant you access to FAAMG and many other industry leaders, helping you diversify for a fraction of the price.
Next on the list are stocks which will benefit from 5G infrastructure. Extensive growth will filter through 5G semiconductors also known as chipmakers. Stalwart companies such as Qualcomm Inc (NASDAQ: QCOM) and Intel Corporation (NASDAQ: INTC) are well equipped to provide 5G chips. The fierce competition in the space may leave an investor baffled over which stock to select. If that is the case, an ETF may once again come to the rescue, more specifically the Global X Internet of Things ETF (NASDAQ: SNSR) which will provide returns filtered through a selected group of companies potentially benefitting from trends in WiFi, 5G telecommunications infrastructure, and fiber optics.
Keeping a positive outlook, 2020 may well be suited for Mergers & Acquisitions within the technology sector. The industry’s ongoing activity could lead to the acquisition of Logitech International SA (SWX: LOGN) by larger computer hardware manufacturers. It would be wise to keep an eye on the Swiss computer and software manufacturer which does not hold any debt on its balance sheet and maintains profitable revenue growth.
Investors seeking international exposure would not need to look far. In fact, considered the Amazon of China, Alibaba Group Holding Ltd. (NYSE: BABA) publicly trades on the New York Stock Exchange. Despite a generous share price, following an extremely successful Initial Public Offering (IPO) in 2014, the P/E ratio of 25 may still be undervalued relative to Amazon, considering its large revenues coupled with potential growth in cloud computing.
While the industry appears remarkably prosperous, there may be limits when it comes to investing. The fear of missing out on the absurd gains observed in Tech the last couple of years, does not justify throwing your money at any technology corporation in the market. In fact, many of the tech companies will take a hit in the eventual economic downturn, causing their share prices to plummet. One cannot stress enough the importance of a fundamental analysis on a company’s numbers and macroeconomic growth potentials, as well as constraints in a time of ‘through the roof’ valuations and a technology dominant trend.
As a whole, the sector is far from its peak. The challenge, however, is to pick the winners as competition lies beyond belief. Relating the short-term gains of 5G infrastructure to its effect on future growth would be the wisest decision for long term investments which could potentially survive an economic recession. From such a perspective, we need to figure out the way Artificial Intelligence, Virtual Reality and Data processing will shape the next decades. In short, we must detect the companies most adapted to take on these technological innovations profitably.
Short-term gains are looking positive in the months to come considering extremely low interest rates, trade deals, coupled with a U.S presidential election. Stocks mentioned previously and many others related to cloud computing infrastructure, fiber optics technologies, microdata centers, semiconductors, as well as wireless telecommunications networks will potentially hit all-time highs in 2020.
The Technology sector is submerged in growth potential for the next decades. A cyclical downturn will eventually occur and offer these stocks at particularly profitable prices considering their long-term growth potential. We do not all have the opportunity or desire to wait for a recession in order to acquire certain stocks. In such regards, 5G Small Cap companies and Blue Chip Tech Stocks will set the trend in the months to come.