Looking at the latest headlines, it’s easy to concoct a narrative around short-term investment trends based on your personal tastes. Is the Afghanistan chaos good or bad for defense firms? Will inflation lift oil stocks or miners? What are the best infrastructure stocks for the trillion-dollar spending bill?
But here’s the thing: Tactical investments and market timing is incredibly difficult, regardless of how good a story you tell yourself. So why overthink things — particularly when the S&P 500 index SPX, -0.18% continues to set new records every few days, with the ever-dynamic technology sector continuing to drive much of that success?
Recent share performance and recent earnings in these five $20 billion-plus companies proves this sector remains a massive growth center for Wall Street regardless of the short-term news cycle. So if you’d rather go with tried-and-true profits over a quirky play based on your personal interpretation of the headlines, here are five tech stocks to consider for their current growth and long-term potential.
In a modern digital economy, hacking and high-tech risks remain a persistent threat. That creates a constant need for companies like $50 billion security giant Fortinet FTNT, -1.21% to ply their services, likely for years to come.
Proof of this growth trend isn’t built on some hysterical headline about data breaches, but rather through tangible profit and sales growth. Fortinet’s second-quarter earnings on July 29 featured revenue expansion of 30% year-over-year and record free cash flow. What’s more, product sales exploded 41% higher thanks to what is seen as a new data center upgrade cycle — meaning these installed products will deliver down the road via recurring service and maintenance revenue.
Fortinet has been around since the dot-com days and sometimes gets overlooked for younger and more volatile cyber players that find short-term appeal. But this is not a sleepy legacy tech stock; it has 12-months returns of more than 140% thanks to impressive fundamentals and the long-term megatrend of cybersecurity growth. In fact, those gains make it the top-performing tech stock in the S&P 500 over the last 12 month.
And with $3.3 billion in cash on the books and more than 1,000 patents issued or pending, this is not a tech stock that will easily be disrupted by some of those upstart cyber firms that may make flashy headlines, too.
This $560 billion chipmaking powerhouse is one of Wall Street’s biggest success stories. Nvidia’s stock is up more than 1,300% in the last five years. Momentum hasn’t slowed much of late, with gains of more than 70% in the last 12 months.
That’s because the fundamentals are just too good to pass over. In Nvidia’s NVDA, -0.76% second-quarter earnings report, it reported better-than-expected revenue growth of 68% year-over-year to tally a record $6.51 billion on the top line. Earnings surged even more, with an 89% year-over-year growth rate that also topped analysts’ estimates.
This comes on the heels of another sales record in its first-quarter report — an impressive performance despite supply-chain disruptions and chip shortages that could be holding Nvidia back from meeting the full appetite of the marketplace.
Looking forward, Nvidia is still suffering through antitrust review of its $40 billion acquisition plan for Arm Ltd., a big-ticket move that could cement this tech stock as the leading artificial intelligence firm on the planet. It all adds up to a tremendous growth story that has proved durable, regardless of broader headlines or economic cycles.
Shares in this mobile payments giant founded and run by Jack Dorsey have soared 2,100% over the last five years and continue to outperform with a roughly 70% gain in the last 12 months.
And why shouldn’t investors love Square’s SQ, -0.62% stock? Its most recent earnings showed a thriving ecosystem, split about evenly between its point-of-sales technology and its Cash App money transfer tool that tallied 40 million transacting-active customers. Revenue set a record at almost $4.7 billion, more than double the prior year, thanks in large part to this rapid adoption.
Earnings have moved dramatically into positive territory as a result, with earnings of 66 cents a share — more than triple the 18 cents a year ago and a sign that this is not a company running a loss as it seeks scale, but rather a true profit-generating enterprise.
The icing on the cake: Square remains one of the seven largest holdings in the flagship ARK Investment fund run by Cathie Wood, the Ark Innovation ETF ARKK, -0.61% that currently has 4% of its $25 billion in assets in the stock. That will provide sustained buzz and buying pressure to support this stock’s already impressive run.
High-tech sensor and analytics firm Trimble TRMB, -1.48% isn’t exactly a high-profile tech stock, but at about $24 billion in market value and almost $4 billion in annual revenue, this, too, is no cash-burning startup. In fact, it is a leader in geospatial mapping and tracking, with deep relationships to industries including energy, agriculture, transportation and defense.
The potential of real-time tracking and GPS-related applications is huge, and recent earnings show this. Trimble just reported record second-quarter revenue with a 29% year-over-year growth rate that powered 38% earnings growth and record operating cash flow. Looking forward, Wall Street expects Trimble to expand sales by 10% over the next year.
Speaking of Wall Street, investors generally have been quite optimistic on the stock, based on gains of more than 230% from the spring 2020 lows and gains of more than 40% year-to-date in 2021.
Admittedly, Trimble is a quirky tech stock that doesn’t have the massive scale or consumer appeal some traders like to see. But high-tech mapping and geolocation applications are increasingly important to businesses of all shapes and sizes — and the long-term potential of this highflying tech stock is real.
Zebra Technologies ZBRA, +0.60% is a mobile sensor and analytics company that offers tracking technologies from the old-school striped bar codes that are the impetus for its name to interactive kiosks and near-field sensor applications. Anyone who has ordered takeout via a touch-screen kiosk or put in a tracking code to see where a package is can immediately understand the consumer-facing applications of this technology, but the real opportunities for the stock come from businesses with an eye on inventory management or staff productivity.
This potential is evidenced by the latest Zebra earnings, which featured 44% top-line growth. That’s impressive enough, but even more substantial is the fact that net earnings were up a stunning 119% year-over-year.
Zebra is rolling up related tech players at a rapid clip to future-proof its business, too. The latest deals of note are the $290 million acquisition of Fetch Robotics in July and one for AI and asset intelligence firm Antuit.ai just this week. This comes on the heels of machine vision deals for Adaptive Vision in May and Cortexica Vision Systems in late 2019 as well as the purchase of analytics and machine learning startup Profitech in 2019.
These deals obviously cost money, but they ensure Zebra is truly evolving into a 21st century business analytics firm — a quite lucrative niche, if its plans play out. And based on the fact that shares have doubled in the last 12 months and continue to hit new all-time highs like clockwork, Wall Street seems optimistic that Zebra will deliver.
Jeff Reeves is a MarketWatch columnist. He doesn’t own any of the stocks mentioned in this article.