The tech sector has been one of the most volatile in recent months and many are wondering if a bubble is forming. But, the sector has been gaining recently as innovations, deals, and new products are announced.
Chris Versace, the co-manager of Trifecta Stocks and Stocks Under $10, and Ed Ponsi, managing director of Barchetta Capital Management say it’s not that simple. Wall Street veterans outlined their projections for the tech sector looking ahead to the next couple of years.
“Investors need to look, for the long-term, at the structural changes that are unfolding in the tech market and stay busy looking forward to where the new growth is,” said Versace.
“There’s no question that there was a huge move to work-from-home companies in 2020 and even though we’re going into a reopening, there is still going to be a lot of work-from-home in 2021 and beyond. That being said, looking at the charts of most of the companies like Peloton (PTON) – Get Report, Zoom Video Communication (ZM) – Get Report, TeleDoc and others, I just can’t get behind them right now,” said Ed Ponsi, managing director at Barcetta Capital Management.
Some of the leading social media stocks have been the best performers lately. While Snap (SNAP) – Get Report is off its highs, it shouldn’t be ignored. It’s the best-performing social media stock over the past month, slightly edging out Pinterest (PINS) – Get Report. It’s also the best-performing stock in the group so far this year, slightly edging out Facebook (FB) – Get Report.
The great appeal of a grouping of stocks like the FAANGs (Facebook (FB) – Get Report, Apple (AAPL) – Get Report, Amazon (AMZN) – Get Report, Netflix (NFLX) – Get Report and Google/Alphabet (GOOGL) – Get Report) is that they make the investment process simple.
In recent years, the great bulk of gains in the indices has been produced by this small number of stocks. According to studies by Ed Yardeni, the four original FANG names (Facebook, Amazon, Netflix and Google/Alphabet) have outperformed the rest of the S&P 500 by about 400% since 2012.
Netflix said Thursday that it launched Netflx.shop, which will sell curated products including apparel, toys and games. Netflix said in a statement that Netflix.shop will also offer apparel and other products tied to the streaming giant’s programs. Netflix.shop will first be available in the U.S. before expanding into other countries in coming months, the company said.
“Amazon, Facebook, and the other FAANG stocks are perfect when interest rates are falling and even when inflation fears rise, making the market choppy and volatile,” according to TheStreet’s Jim Cramer.
Stocks like Amazon, Apple and Facebook have historically performed well in these instances, Cramer told Senior Portfolio Analyst Jeff Marks.
When asked which FAANG stocks to buy now, Real Money contributor James DePorre says: “Based on the numbers, I’d likely go with Facebook and Google but based on the potential for future innovation and growth, it is hard to bet against Amazon, which seems to constantly find new ways to expand its business.”
Here is a list of the technology and FAANG stocks to watch right now based on their performance over the past week:
Twitter (TWTR) – Get Report shares rose Wednesday after Vertical Group upgraded the social-media titan to very positive from mixed/positive amid optimism about the company’s growth.
“The flow of new brand campaign promotions and product releases, which picked up in the late first quarter, has accelerated further in April and May, boosting Twitter’s year-on-year growth momentum,” wrote Vertical analyst Phil Leggiere.
The Street Quant Ratings rates Twitter as a Hold with a rating score of C.
Slack Technologies (WORK) – Get Report posted better-than-expected results this past week as the workplace communications company swung to a profit in the latest quarter. Slack posted earnings of 8 cents a share on revenue of $273 million.
The company had been expected to break even on sales of $267.1 million, based on a FactSet survey of 9 analysts. In the same period a year ago the company posted a loss of 2 cents a share on sales of $201.7 million.
Slack reported paid accounts totaling 169,000. It had been expected to report just under 156,000.
The Street Quant Ratings rates Slack as a Sell with a rating score of D+.
DocuSign (DOCU) – Get Report was climbing this past week after the e-signature solution company’s earnings report was called “another home-run quarter” by one analyst and sparked praise from several investment firms.
The company posted earnings and revenue that exceeded Wall Street expectations and gave an upbeat outlook as more companies adopted its electronic signature technology.
DocuSign posted adjusted earnings of 44 cents a share, while revenue reached $469.1 million from $297 million. Wall Street had been calling for adjusted earnings of 28 cents a share on revenue of $437.6 million.
The Street Quant Ratings rates DocuSign as a Sell with a rating score of D.
Shares of enterprise cloud workflow automation company ServiceNow (NOW) – Get Report rose Thursday after analysts at Goldman Sachs added the company to its conviction list while reiterating its buy rating with a $695 price target.
Goldman says ServiceNow can exceed its internal guidance for $15 billion of subscription revenue in 2026. And, Goldman notes that average deal sizes are very large and the firm sees ServiceNow being able to complement Salesforce.com (CRM) – Get Report and Workday (WDAY) – Get Report.
The Street Quant Ratings rates ServiceNow as a Buy with a rating score of B-.
Salesforce.com (CRM) – Get Report advanced this past week after several analysts reiterated their optimism about the stock following the customer-relationship-management-software provider’s first-quarter print.
The company reported adjusted earnings of $1.21 a share on revenue of $5.96 billion.
The Street Quant Ratings rates Salesforce as a Buy with a rating score of B-.
The Street Quant Ratings rates Snapchat as a Sell with a rating score of D.
The software titan is also negotiating deals with TV makers to include the new technology in their products, it said, according to Bloomberg. Microsoft wants to place Xbox directly on internet-connected TVs so that users don’t need anything outside of a video game controller, it said.
The company is also creating streaming devices that can send cloud gaming services to any TV or monitor, Bloomberg reports. The moves could be motivated by the global semiconductor shortage that has created a shortage of the latest Xbox consoles.
The Street Quant Ratings rates Microsoft as a Buy with a rating score of A.
Facebook (FB) – Get Report has moved cautiously — some might say too cautiously — when it comes to monetizing Messenger and WhatsApp, which claim, respectively, more than 1.3 billion and 2 billion monthly active users.
But the company is gradually making good on Mark Zuckerberg’s vision of having its messaging platforms act as customer service and engagement channels for businesses marketing and selling on Facebook’s core app and Instagram.
In addition, WhatsApp’s product catalog feature creates an e-commerce opening for the platform, and (though Facebook is opting not to do so for now) its stories service, known as Status, could eventually be monetized via ads.
TheStreet Quant Ratings rates Facebook as a Buy with a rating score of A-.
A slew of media reports arrived in late 2020 and early 2021 stating Apple is looking to launch an autonomous electric car somewhere in the middle of this decade. With Apple reportedly wanting its cars to be fully driverless from the start, the cars might only operate in a limited set of environments at first.
But the company’s engineering pedigree works in its favor as it tries to launch a differentiated solution in a crowded field, as does its knack for crafting end-to-end experiences covering hardware, software and services. And when a car has no steering wheel, pedals or need for traditional driver visibility, its designer can get pretty creative about what its interior looks like.
TheStreet Quant Ratings rates Apple as a Buy with a rating score of A-.
European Union regulators have recommended a fine of more than $425 million on Amazon.com for violating privacy law, sources told The Wall Street Journal.
The violation concerns Amazon’s collection and use of personal data and doesn’t apply to its Amazon Web Services cloud unit, one of the sources said. An Amazon spokesman declined to comment to the Journal.
The proposed fine would be the largest imposed so far under EU privacy law, the sources said, and the penalty was recommended by the data-protection commission of Luxembourg, where Amazon has its EU headquarters. But other EU privacy regulators must approve it too, which could take months and lead to a reduction or increase in the fine, the Journal reported.
TheStreet Quant Ratings rates Amazon as a Buy with a rating score of B.
For years, Netflix has been nearly synonymous with streaming movies and television, but its leading position might now be in doubt. There’s a growing cavalcade of challengers with both sizable pocketbooks and existing video catalogs that could soon cut into not only the company’s cultural significance but its prized place as the top streaming service.
Netflix was relatively unchallenged in 2015, having triple the U.S. share of its nearest competitor at the time in Amazon, which was also the only competitor to hold a double-digit market share, according to Nielsen. But in 2020, three competitors — Amazon, Walt Disney Co. (DIS) – Get Report (both with Disney+ and Hulu) and AT&T’s (T) – Get Report HBO Max — held double-digit market shares, encroaching upon Netflix’s 21% slice of the streaming market.
TheStreet Quant Ratings rates Netflix as a Buy with a rating score of B.
Alphabet’s self-driving unit Waymo is still arguably the technology leader in the field. Over the next several years, Waymo’s driverless taxi services — for now, available in just a portion of the Phoenix metro area — could become available to a much larger number of consumers, and its partnerships with automakers such as Volvo, Fiat Chrysler and Nissan-Renault could yield commercial vehicle launches.
Google’s public cloud operation, Google Cloud Platform, is already a pretty large business but is losing money hand-over-fist for now. In 2020, the Google Cloud segment, which covers both GCP and the Google Workspace productivity app business, posted a $5.6 billion GAAP operating loss on revenue of $13.1 billion, with GCP investments believed to account for much of the red ink.
TheStreet Quant Ratings rates Alphabet as a Buy with a rating score of A.
Zoom Video Communications
Zoom Video Communications (ZM) – Get Report posted earnings recently, with TheStreet’s Martin Baccardax writing that Zoom’s non-GAAP earnings for the three months ending in April were pegged at $1.32 per share, a five-fold increase from the same period last year as revenues surged 191% to $956.2 million as its customer base of companies with more than 10 employers rose 87% to just under 500,000.
“Zoom hasn’t been a name I’ve been focused on because it trades at such a high price-to-sales multiple and, if you look at the growth numbers, Zoom just delivered. They will grow into that figure but I think it will take a lot more time,” said TheStreet’s Jeff Marks.
“When it comes to the big, high-multiple software stocks that I’ve been interested in and the one we currently own at Actions Alerts PLUS, that’s going to be Salesforce,” Marks noted.
TheStreet Quant Ratings rates Zoom Video Communications as a Sell with a rating score of D+.
Salesforce, Microsoft, Facebook, Apple, Amazon, Disney and Alphabet are holdings in Jim Cramer’s Action Alerts PLUS Charitable Trust Portfolio. Want to be alerted before Cramer buys or sells these stocks? Learn more now.