Investing in tech stocks today
Tech stocks were battered during the first half of the year, but they could be facing either more pain in the second half of the year as the economy faces a slowdown.
Multi-decade high inflation and the Fed’s aggressive monetary tightening to bring prices down have led to massive tech sell-offs over the past few months. The tech-heavy Nasdaq Composite has declined more than 27% year to date.
While some tech stocks have rebounded slightly, well-known and robust tech stocks are also not immune to the pain. Even Apple (AAPL) has fallen by 21.3% during the past six months while Alphabet (GOOGL) is down a whopping 21.95%.
However, the industry is expected to grow as enterprises increasingly invest in tech upgrades to stay relevant in a fast-changing business environment. Emerging technologies such as the internet of things (IoT), artificial intelligence, cloud computing, AR & VR are expected to drive the industry’s growth. Declines in robust tech stocks also make them increasingly attractive for long-term portfolios.
What to consider while investing in tech stocks today
- Given the history of tech stocks, investors should stay in the sector. Amid the volatility, history has proved the resiliency of these stocks.
- At the appropriate part of the economic cycle, growth companies – such as tech stocks – can help accelerate the returns on an investment portfolio.
- Tech companies are often at the cutting edge of innovation. Owning shares in businesses like these potentially enables investors to benefit from the breakthroughs that help shape the computing and internet landscape for many years to come.
- In the US, tech companies now make up more than a fifth of the S&P 500, the world’s most influential stock market index.
With the current market situation, what tech stocks should you look at?
Microsoft (MSFT)
Microsoft has been hit hard along with other large-cap tech stocks. As of June 17 at $249.22, MSFT stock is down 25.9% year-to-date from $336.82, where it ended in 2021. Moreover, it’s down 28.9% from its peak of $343.11 on Nov. 19, 2021.
While it wouldn’t be totally accurate to say that this ~25% pullback YTD places MSFT into a true bargain price range, it has elevated the dividend back to a ~1% yield. Coupled with the ~10% dividend growth rate over the past few years, there is the opportunity for a rising income for patient investors.
Moreover, Microsoft’s buyback and dividend program rose by 25%. It spent $12.5 billion on dividends and share repurchases. At this pace, it could spend $50 billion per year or 2.76% of its market cap on return of capital. That will act as a significant catalyst helping to push MSFT higher over the next year.
Oracle (ORCL)
Oracle shares were recently trading at about $68 each, which is down over 15% over the last year. However, Over the past decade, including dividends, Oracle (NYSE: ORCL) stock has returned 182%. That’s nearly 11% annualized—a seemingly impressive figure. Additionally, amid the ruins of the bear market, the ORCL stock is less battered than its rivals. It’s profitable, and the new dividend gives it a yield of 1.84%.
Earnings at this cloud platform and software company are forecast to rise 12.3% to $5.93 per share in 2023. That makes ORCL stock, at ~$68 in mid-June, cheap at just 13x earnings. That is well below its 15x average forward multiple in the last 5 years.
Oracle’s recent fiscal Q4 earnings showed revenue up 5%. This was mostly from cloud services and support, up 19% YOY. Its non-GAAP EPS was $4.9, also up 5% YOY. So far there is no downturn in earnings on the horizon. Analysts are still very positive about its future earnings forecasts.
Combined with its dividend yield of 1.84%, this means shareholders get a total yield of 3.44%. Analysts expect it will rise 29% to $88.71 over the next 12 months.
Micro Focus Int’l Plc (MFGP)
Micro Focus is an international enterprise software company based in the UK and is one of the world’s largest enterprise software companies. Its revenue fell in the year to Oct. 31, 2021, to $2.9 billion, down from $3 billion. But analysts project a higher EPS at $1.47 per share vs. $1.44 for the October 2022 year. 2023 earnings are forecast to dip slightly to $1.38. As a result, MFGP has a very low price-to-earnings (P/E) multiple of just 2.84x for the Oct. 2022 year and 3x for October 2023.
Moreover, it pays two dividends a year, most of which come in the final dividend. But it seems to average about 28 cents to 29 cents annually. That gives MFGP stock a high 6.8% dividend yield at today’s price of $4.22 as of June 17.
Closing note
Before venturing into tech stocks, it is important to note that most stocks are trading well below all of their major resistance levels, including the all-important 200-day moving average. However, corporate leaders are still committed to investing in new technologies to automate their workflows and protect digital data. This means greater investment in cloud-based technologies and cyber security.
Investors should also consider other tech stocks, including those in telecommunications. Stocks like Verizon and AT&T have a long history and strong fundamentals. They share a portion of their profits with their shareholders in the form of dividends, which also enhances their investment appeal. Investors interested in making long-term returns can consider these stocks.