5 Best Tech Stocks to Buy Now for 2020 - YouTube

If you want growth and returns, there’s no better stock sector than tech.

The technology companies in the S&P 500 have doubled the market return over the last five

years and it may just be getting started!

In this video, I’ll show you how to find the best tech stocks to buy then reveal the

top five stocks for your portfolio.

We’re talking top tech stocks to buy today on Let’s Talk Money!

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Hey Bowtie Nation, Joseph Hogue with the Let’s Talk Money channel.

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We’re starting a great series of videos today, an idea straight out of a suggestion

from one of you in the bow-tie nation.

Over 11 episodes, we’ll be looking at the best stocks to buy but doing it in a way that’s

not only going to grow your portfolio but protect it as well.

Now those of you in the nation have heard me say how important it is to pick stocks

from each sector of the economy.

We’re talking stocks from energy companies, tech, consumer goods and so on.

Too many investors get excited about one specific sector like that growth in tech or the dividends

in consumer staples, they plow all their money into stocks in just a couple of sectors and

get absolutely destroyed in the next bear market.

A lot of times, you may not even realize it’s happening until it’s too late.

You might be screening for dividend stocks to buy.

You narrow your list and invest, but by virtue of limiting your picks to the top dividend

stocks, you might also be limiting your portfolio to those sectors that pay the highest dividends.

This is supremely important and I can’t believe we haven’t covered yet on the channel.

Over these 11 episodes, one for each stock sector, I’ll show you how to pick the best

of breed in each.

We’ll look at some of the big trends and how to pick stocks to buy, then I’ll reveal

my five favorite stocks in each.

Now understand, you don’t necessarily need all five stocks in all 11 sectors for a great

portfolio.

I would recommend putting at least two or three stocks from each sector into your portfolio.

I’m also going to show you a couple of exchange traded funds you can buy to get broad exposure

to the sectors and share the simple strategy I use to get market returns plus a few extra

percent every single year.

So let’s get started because I’m excited to talk tech with you.

If you’re coming in later to the series, I’ll link in the first comment below the

video to the most recent video.

I’ll also be linking in the video description, all the videos in the series so you can see

all the stocks for each sector.

If you’re coming in later, will link up the other videos in the series in the first

comment.

If you don’t go with any of the stocks in a sector, consider a position in one of the

sector funds to get that exposure.

Here’s that graphic again of the stock sectors and today we’ll be looking at tech including

semiconductors, software, storage and internet companies.

Picking these five tech stocks to buy, I screened for a lot of the fundamentals we’ve talked

about on the channel.

I screened for companies with increasing revenue and cash flow over the last few years.

With the economy growing, this was most companies but it did screen out a few losers in downward

trends.

Another factor I looked for, and all of you in the bowtie nation are probably tired of

hearing me talk about this one is the operating margin.

If there is one single factor you look for in picking stocks, it should be the operating

margin.

This is the operating income divided by the total sales for a company over the period,

usually three months or a year.

So if we look at the income statement here, we see sales or revenue at the top with $259

billion for Apple.

After the cost of goods or materials, the statement deducts the costs of running the

company, these operating costs.

Now what you get after removing the costs of running the business; marketing, administration,

all these costs, is the operating profit, this $64.4 billion for Apple.

It’s the truest and best measure for management’s ability of creating a profit from the business.

And when you take that operating profit divided by the sales number, you get a profit percentage

for how efficient and effective the business is.

The pundits and financial media like to talk about the bottom-line earnings and the profit

margin.

Don’t look at that.

The earnings includes the effect of debt and financial leverage as well as accounting tricks

on taxes.

Analysts look at this operating margin as the real measure of management’s success.

When you compare this operating profitability across companies in the same sector and industry,

you see which are best run and have those competitive advantages.

I also screened for a positive dividend yield and this is one where a lot of tech investors

will disagree.

As growth companies, a lot of tech stocks aren’t going to pay dividends.

The company is reinvesting every dime for that faster growth and that’s fine, I just

like getting a cash return on my investments.

I like the cash discipline on management from a dividend.

Management can’t throw cash at worthless acquisitions and low-return projects because

it has to meet that dividend.

But this is probably one you can leave out if you like and I made an exception for two

of our tech stocks.

You’ll open up the list to all those companies that don’t pay a dividend and will still

find some solid investments.

Beyond that fundamental analysis when picking these tech stocks, I looked for companies

with a competitive advantage and catalysts for growth.

The truth is, the market already knows which companies have faster revenue growth, which

have higher operating margins and all that is mostly baked into the current price.

It’s the competitive advantages and those catalysts that offer the real opportunity

for long-term return.

These are the companies with pricing advantages, brand advantages and upcoming events that

can really boost their stock price.

I’ll share those five tech stocks I found next but first I want to highlight three tech

funds you might also consider.

If you can’t find stocks you really like, so if no stocks fit your screening, you might

consider putting some money into these funds just to get that exposure to tech investing.

Then you can invest in stocks of other sectors like we’ll talk about in the series but

still have some of that faster growth from tech.

Our first tech fund is the Technology Select Sector SPDR, ticker XLK.

This holds shares of 68 of the largest tech companies based in the U.S. and is pretty

well diversified across all the separate industries.

Companies in the fund have an average market cap of half a billion dollars so we’re talking

the largest like Microsoft, Apple and Intel.

The fund charges an expense ratio of 0.13% which is extremely low and pays a 1.25% dividend

yield.

While that XLK will give you broad exposure across tech stocks, this next one is more

focused in one of the biggest tech themes right now.

The Global X Cloud Computing ETF, ticker CLOU, holds shares of 36 companies offering cloud

services and positioned to take advantage of the theme.

These companies are quite a bit smaller with an average size of $100 billion and some are

based outside the U.S. so you get some international exposure here.

Understand that the expense ratio, that’s the money that gets deducted out of assets

each year to pay the portfolio management, that’s 0.68% a year so quite a bit higher

but the idea is that these stocks are going to grow faster than the broader tech space

as well.

The last fund here before we get to those five tech stocks to buy is the Global X Internet

of Things ETF, ticker SNSR, and this one invests in all the companies positioned to take advantage

of WiFi, 5G and fiber optics.

This is going to be a huge trend over the next ten years but I feel like it’s a little

less well defined compared to maybe that cloud fund or other themes.

Here you’ve got 50 companies spread across semiconductors, software, hardware, telecom…really

across all of tech.

These are smaller companies with an average market cap of only $26 billion but still established

companies.

The fund is also on the expensive side with that 0.68% expense ratio but could more than

make up for it in growth.

Even if you do invest in a few tech stocks like the ones I’ll highlight now, you might

still consider putting money in some of these funds.

That’s going to give you the opportunity for higher returns from that individual stock

pick but also spread your money out a little across the hundreds of companies in the fund.

Our first couple of tech stocks will come as no surprise and are really bellwethers

in the space.

We start with Intel Corporation, ticker INTC, and its 2.24% dividend.

Despite a really competitive market for semiconductors, Intel has been able to consistently beat expectations.

For example, even with PC volumes down 10% on a year-over-year basis in the third quarter,

the company reported sales that were $1.2 billion over earlier guidance.

A lot of the strength was on a higher sales price with prices higher by three or four

percent across products.

And what this means to me, in a really competitive market, is the power of Intel’s brand and

competitive advantages, that it’s able to drive that kind of pricing power.

Shares are trading around 12-times earnings which are expected flat over the next year

but you can see how management has consistently and easily beaten expectations.

The board has increased the share buyback program to $20 billion over the next 18 months

so that will drive earnings per share.

Intel will benefit from both the cloud computing and internet of things themes and I think

this is where the big upside surprises could come from in the next several years.

The average analyst price target on Intel is the widest we’ll see in the tech stock

group with a high of $70 and a low of $42 per share.

Most of the analysts are grouped right around $60 to $65 a share despite this range.

I think the shares could easily go north of $60 each with earnings around $4.98 per share

which is about 7% higher than expectations.

Add that 9% price growth to a 2%+ dividend and you’ve got a solid double-digit return

here.

Our next tech pick is one of the biggest, trillion-dollar Microsoft, ticker MSFT, and

it’s 1.4% dividend yield.

Microsoft is quite a bit more expensive than I usually like to buy but just got a huge

boost with the Pentagon’s $10 billion cloud computing contract.

The company’s Azure cloud platform was already its big growth driver but this contract is

absolutely huge.

It’s not so much the size of the contract but the fact that this is probably going to

open up a wave of federal and state cloud contracts for the company, none of which are

priced into the shares yet.

Now of course, Amazon will contest the Pentagon contract in courts and might have a decent

case but it’s doubtful this one gets overturned.

The rumors are that President Trump sought to influence the Pentagon’s decision because

Amazon’s founder Jeff Bezos also owns the Washington Post.

It’s going to be tough to prove and even if there is some evidence here, I think Microsoft

still comes out with the contract.

Microsoft’s cloud business also landed a $1.8 billion contract from the Department

of Defense this year and a $2 billion contract from AT&T with CEO Nadella saying he has a

line of sight to many more such deals.

The shares are expensive at 28-times earnings but profits are expected to jump 10% over

the next year and, just like Intel, you can see how management is consistently beating

expectations.

I actually think earnings could top $6 a share over the next year and just keep going from

there.

Microsoft is one of the most widely followed tech stocks among analysts and price targets

are in a really narrow range here.

The lowest target at $155 a share is just over 8% higher than the current price while

the top target of $170 per share is almost 20% higher.

I did a video highlighting Microsoft in August with a buy recommendation.

The shares are up 8% from there and I like that $160 to $170 range for the shares.

Probably the biggest surprise pick and one nobody is watching is Logitech International,

ticker LOGI.

Logitech is a Swiss maker of computer and mobile accessories and I think could potentially

be an acquisition target eventually.

The company makes some of the most popular accessories in the industry.

I’ve got two of their products on my desk right now, the Yeti microphone and the c920

webcam which are pretty much both the defacto used by everyone in the blogging and podcasting

space.

Logitech recently acquired Streamlabs, again the standout leader in its space for video

streaming.

So here you’ve got a company leading in its product categories, growing sales and

cash flows by double-digits consistently and has a pristine balance sheet with no debt

and half a billion in cash…that’s a recipe for some larger player to come and buy it

out.

The company is just under $7 billion market cap so this would be an easy buy for so many

in the tech space.

Shares are trading at just under 20-times earnings which are expected 4% higher over

the next four quarters but this stock isn’t widely covered by analysts.

With solid consumption in gaming and its other core products, I think earnings could come

out around $2.35 per share or higher.

We’ve got just three ranked analysts with targets on Logitech so take this with a grain

of salt but that low target is around $36 per share with a high target of $58 per share.

I like the growth potential on this one and there’s a good chance we see a big pop someday

on a buyout offer.

Now I’ve got two tech stocks that a lot of investors are going to argue with but I

truly believe these are the stocks of the future.

Our first one is Alibaba Group, ticker BABA, which is the Amazon of China.

Between all the sites owned by Alibaba, it has almost a monopoly control in Chines online

consumption and it’s using the massive data it collects to become a data powerhouse as

well.

To give you an idea of scale here, just two of the company’s retail platforms, Taobao

and Tmall, generated upwards of $909 billion in merchandise sales last year, more than

Amazon and eBay combined!

Alibaba is spreading globally much more effectively than Amazon has been able to do, especially

across Asia, and the company’s cloud platform has a distinct advantage over Amazon’s AWS

or Microsoft’s Azure in China.

Shares of Alibaba trade for 28-times earnings, the data here is in Chinese Yuan so converted

earnings are around $6.26 per share, but compare that to Amazon’s stock price of 78-times

earnings and Alibaba is a steal.

Earnings are expected 19% higher over the next year and this one has decades of growth

ahead of it.

Alibaba is widely covered by analysts with a low target of $207 and a high of $250 per

share for upwards of 42% return from the current price.

This is a long-term must own in my book so if you’re bummed about not being able to

buy a share of Amazon for $1,800 each then pick up Alibaba here and wait for it to reach

that price.

If Alibaba is the Amazon of China then our next tech pick, Baidu, ticker BIDU, is the

Google of the world’s second largest economy.

I love these two China plays because they are the mirror twins of Amazon and Google.

Baidu dominates search traffic in China, just like Google, it’s made investments in AI

and self-driving, it’s got an online video platform just like YouTube.

It’s basically just copying one of the most successful businesses in history and doing

it in what could soon be the largest economy in the world.

Shares of Baidu trade for 15.6-times earnings, again this is shown in Chinese Yuan, and even

though earnings are expected lower next year on some divestitures, management has beaten

expectations by an 37% on average over the last eight quarters.

Again, take that winning business model, apply it to the Chinese growth story and get it

for 15-times earnings versus a cost of 27-times earnings for shares of Google.

I think this is another one you can add to your long-term retirement plan and be very

happy.

Analyst targets range from $108 per share on the low side to $181 per share over the

next year and growth here is really over the next decade or better.

Click on the video to the right for the latest update to our dividend portfolio challenge.

This group of dividend stocks is beating the market and producing a cash yield double what

the index is paying.

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