This too shall pass. Those four words should be taped to the computer screen of every investor. If you own shares of the tech sector, you’ve seen your portfolio take quite a hit. Tech stocks were largely immune from the effects of the pandemic.
However, as investors are looking to rebalance their portfolios, tech stocks were obvious targets for some profit-taking. And at the end of the day, that’s what I believe the latest tech selloff amounts to. Stocks don’t move in one direction all the time. Sure, there may be some saber-rattling about breaking up big tech. But with an election in less than two months, nobody will have the political will to do anything.
That doesn’t mean that it’s all going to be smooth sailing. Sure, the Federal Reserve did its part by promising low-interest rates until the end of time (or at least through 2023 whatever comes first). But the rest of 2020 is likely to be volatile for stocks.
First, there’s still the novel coronavirus hanging around. It’s not going to simply disappear after election day. That will take some combination of a vaccine and/or therapeutic. And all the likely candidates seem to be getting farther away the deeper into clinical trials they get.
And we have an election. But we are not likely to know the winner of the election on election night. In fact, for those who remember the spectacle of “hanging chads”, this election could make that one look like amateur hour.
The bottom line is there will be uncertainty. But there are always gains to be found, particularly now that their stock price has come down a little bit. Here are seven tech stocks that you can look to add or increase a position in now that they’re trading at a discount.
Quick Links
- Apple
- Spotify
- Peloton
- Shopify
- Advanced Micro Devices
- Zoom Communications
- Teladoc Health
#1 - Apple (NASDAQ:AAPL)
Apple (NASDAQ:AAPL) is the only one of the FAANG stocks that I’m including on this list. But to be honest, they wouldn’t have made the cut a month ago. Even as a true believer, the stock was looking a little frothy. However, the company’s recent 4-for-1 stock split combined with the recent market dip leaves me no choice. The stock is down 16% since September 1, and that gives investors a compelling reason to take a bite out of the stock.
Yes, the company’s Apple One bundle announcement is looking a little underwhelming. Time will tell. People thought the iPhone 11 was dead in the water. And the same was said about the Apple Watch. So, let’s give that some time. Apple is still relatively new to the services game.
And not all analysts were sanguine about Apple. Needham analyst Laura Martin not only reiterated her buy rating but increased her price target from $112.50 to $140. If AAPL stock were to hit that mark, it would be a nifty 24% gain for investors.
For me, this remains about the iPhone. And Apple will be releasing a new version of its iconic device later this year. Plus the company is announcing plans to produce custom chips for some Mac computers.
About Apple
Apple Inc designs, manufactures, and markets smartphones, personal computers, tablets, wearables, and accessories worldwide. The company offers iPhone, a line of smartphones; Mac, a line of personal computers; iPad, a line of multi-purpose tablets; and wearables, home, and accessories comprising AirPods, Apple TV, Apple Watch, Beats products, and HomePod.
Read More - Current Price
- $254.49
- Consensus Rating
- Moderate Buy
- Ratings Breakdown
- 24 Buy Ratings, 11 Hold Ratings, 2 Sell Ratings.
- Consensus Price Target
- $236.78 (7.0% Downside)
#2 - Spotify (NYSE:SPOT)
The next two companies on the list stand to benefit from the Apple One bundle announcement. In the case of Spotify (NYSE:SPOT), the company is a direct competitor to Apple Music. But let’s be clear, there’s a reason why Apple wants to bundle its Music service. It’s a distant number two in the paid streaming sector. Spotify has nearly 300 million monthly active users, and that includes 130 million users who pay for Spotify Premium.
I have an iPhone. I’ve never used Apple Music. Yes, I suppose I can bring over some songs that I purchased in iTunes, but it was easier (and free) to just download Spotify and away I go. But since I don’t normally see myself as a barometer of the market, I look at my kids (ranging from 14 to 22). All have Spotify (two out of three have Premium) so it’s a service that has wide demographic appeal. And Spotify’s recent push to become a leader in the podcast space will also help set the company apart.
The stock is down 19.5% since September 1.
About Spotify Technology
Spotify Technology SA, together with its subsidiaries, provides audio streaming subscription services worldwide. It operates through two segments, Premium and Ad-Supported. The Premium segment offers unlimited online and offline streaming access to its catalog of music and podcasts without commercial breaks to its subscribers.
Read More - Current Price
- $460.88
- Consensus Rating
- Moderate Buy
- Ratings Breakdown
- 22 Buy Ratings, 5 Hold Ratings, 1 Sell Ratings.
- Consensus Price Target
- $429.96 (6.7% Downside)
#3 - Peloton (NASDAQ:PTON)
The next company on the list may surprise you as a tech company, but Peloton (NASDAQ:PTON) is as much a tech company as it is a fitness company. And if you need evidence of that once again you have to look no further than Apple.
Although in response to the Apple One bundle that includes Apple Fitness, Peloton’s chief executive officer said that its fitness equipment was its “secret sauce” that will be a differentiator. But he may be playing things a little coy. Peloton is managing to give its customers a “gym-like” experience in the privacy (and safety) of their own homes.
It makes sense. People aren’t just going to part with the kind of money they pay for a Peloton bike or treadmill just to get a good sweat. Peloton provides interactive streaming content and the ability to be part of a social community. That’s a benefit that fitness companies, and even a service like Apple, will find hard to match in the short term. And that gives Peloton a nice runway.
The stock isn’t on sale because of the selloff in the tech sector. However at the time of this writing, PTON stock is down about 10% from its recent high of just over $91 per share.
About Peloton Interactive
Peloton Interactive, Inc operates interactive fitness platform in North America and internationally. The company offers connected fitness products with touchscreen that streams live and on-demand classes under the Peloton Bike, Peloton Bike+, Peloton Tread, Peloton Tread+, Peloton Guide, and Peloton Row names.
Read More - Current Price
- $9.38
- Consensus Rating
- Hold
- Ratings Breakdown
- 3 Buy Ratings, 16 Hold Ratings, 0 Sell Ratings.
- Consensus Price Target
- $6.97 (25.7% Downside)
#4 - Shopify (NYSE:SHOP)
If you’re looking at an e-commerce play, I suppose you could count Amazon (NASDAQ:AMZN) as a stock to buy on sale. Shares of the tech giant are down almost 15% since September 1. But an equally compelling option is Shopify (NYSE:SHOP). Shopify has dropped 25% since the calendar turned which it makes look like a screaming buy.
Shopify helps merchants outsource their e-commerce websites. The company has built a loyal base with small- to medium-sized businesses that are attracted to Shopify’s monthly cost (just $29), it’s low credit card processing fees (2.9% + 30 cents). And Shopify allows its customers to “own” their site. This means a visitor to a Shopify site won’t see products from competitors.
There is some concern that Shopify will not be able to sustain the sales growth it has seen during the pandemic. However, an event such as the novel coronavirus makes evident things that we did “just because.” And I think, for many people, shopping may fall into that category. There were some things we left the house for because it’s just what we did. Now that we realize we don’t have to (and maybe don’t want to), Shopify should continue to benefit well past 2020.
About Shopify
Shopify Inc, a commerce company, provides a commerce platform and services in Canada, the United States, Europe, the Middle East, Africa, the Asia Pacific, Australia, China, and Latin America. The company's platform enables merchants to displays, manages, markets, and sells its products through various sales channels, including web and mobile storefronts, physical retail locations, pop-up shops, social media storefronts, native mobile apps, buy buttons, and marketplaces; and enables to manage products and inventory, process orders and payments, fulfill and ship orders, new buyers and build customer relationships, source products, leverage analytics and reporting, manage cash, payments and transactions, and access financing.
Read More - Current Price
- $108.95
- Consensus Rating
- Moderate Buy
- Ratings Breakdown
- 24 Buy Ratings, 15 Hold Ratings, 1 Sell Ratings.
- Consensus Price Target
- $99.03 (9.1% Downside)
#5 - Advanced Micro Devices (NASDAQ:AMD)
As proof that sometimes market selloffs have a life of their own, I present Advanced Micro Devices (NASDAQ:AMD). It’s fair to say the company didn’t benefit from the work-from-home (WFH) movement as many expected. However, the company has a huge catalyst on the way as both Microsoft (NASDAQ:MSFT) and Sony (NYSE:SNE) introduce new versions of their Xbox and Playstation gaming consoles later this year.
And over the last couple of years, AMD has proved that smaller is better. It was first to market with a 7 nanometer (nm) graphics card in 2019. The company followed that up this year with its release of 7nmu CPUs. The smaller chips, as expected, are faster than the 12nm versions made by Intel (NASDAQ:INTC). However, they also consume less power. This is helping AMD capture market share in devices such as mobile phones and laptops.
And with Intel two years away from introducing its own 7nm chips, Advanced Micro Devices has a long runway for growth. Shares of AMD are down nearly 18% since September 1, creating a pullback that many analysts had been hoping for.
About Advanced Micro Devices
Advanced Micro Devices, Inc operates as a semiconductor company worldwide. It operates through Data Center, Client, Gaming, and Embedded segments. The company offers x86 microprocessors and graphics processing units (GPUs) as an accelerated processing unit, chipsets, data center, and professional GPUs; and embedded processors, and semi-custom system-on-chip (SoC) products, microprocessor and SoC development services and technology, data processing unites, field programmable gate arrays (FPGA), and adaptive SoC products.
Read More - Current Price
- $119.21
- Consensus Rating
- Moderate Buy
- Ratings Breakdown
- 27 Buy Ratings, 4 Hold Ratings, 0 Sell Ratings.
- Consensus Price Target
- $191.96 (61.0% Upside)
#6 - Zoom Communications (NASDAQ:ZM)
It’s hard to believe how Zoom Communications (NASDAQ:ZM) has become like the Kleenex of videoconferencing stocks. Even when people are conducting a meeting on another platform, they’re said to have a “Zoom call.”
The simple reality is that videoconferencing was gaining popularity prior to the pandemic. When businesses, schools, and families needed a way to connect during the unprecedented shelter-in-place orders, Zoom had its moment. And it delivered. Customers don’t forget that.
Videoconferences are not going to take the place of genuine personal interaction (I hope not). But if the pandemic has taught us anything, it’s that what was formerly thought to be impossible is possible. The same can be said of remote learning (although the jury is still out on that).
Yes, it will be hard for Zoom to build a moat and competitors are already entering the arena. But Zoom has a first mover advantage and, as mentioned above, they’ve already proven themselves under the most adverse conditions.
ZM stock is down nearly 13% since September 1, making it an attractive option for bargain hunters.
About Zoom Video Communications
Zoom Video Communications, Inc provides unified communications platform in the Americas, the Asia Pacific, Europe, the Middle East, and Africa. The company offers Zoom Meetings that offers HD video, voice, chat, and content sharing through mobile devices, desktops, laptops, telephones, and conference room systems; Zoom Phone, an enterprise cloud phone system; and Zoom Chat enables users to share messages, images, audio files, and content in desktop, laptop, tablet, and mobile devices.
Read More - Current Price
- $85.60
- Consensus Rating
- Hold
- Ratings Breakdown
- 9 Buy Ratings, 14 Hold Ratings, 2 Sell Ratings.
- Consensus Price Target
- $87.10 (1.7% Upside)
#7 - Teladoc Health (NYSE:TDOC)
I’ve always found the doctor-patient relationship a little like the old days of buying a car. It was needlessly too formal. I’m not saying that there shouldn’t be safeguards and protocols particularly for people with chronic conditions that require careful, personal monitoring. But the whole idea of going to the doctor’s for a routine checkup seemed a bit unnecessary. Like what if you could just give the doctor a quick call and say, “Hey, I’m fine. The medicine is working great.”
What’s that you say? There’s an app for that? Well, it’s not that simple, but it’s the basic idea behind the incredible performance of Teladoc Health (NYSE:TDOC). Like many pandemic stock winners, Teladoc benefited because doctor’s offices were literally closed. But patients still needed access to quality healthcare.
And with Teladoc merging with Livongo Health (NASDAQ:LVGO ), the company will have the analytical tools to go along with its personalized doctor’s visit. Investors don’t like the short-term pain that’s being caused by the merger (existing shareholders are seeing their shares get diluted). But that looks to be just a small blip. Teladoc stock is down 14% since September and has a strong long-term growth story.
About Teladoc Health
Teladoc Health, Inc provides virtual healthcare services worldwide. The company operates through Teladoc Health Integrated Care and BetterHelp segments. The Integrated Care segment offers virtual medical services, including general medical, expert medical, specialty medical, chronic condition management, and mental health, as well as enabling technologies and enterprise telehealth solutions for hospitals and health systems.
Read More - Current Price
- $9.44
- Consensus Rating
- Hold
- Ratings Breakdown
- 7 Buy Ratings, 14 Hold Ratings, 0 Sell Ratings.
- Consensus Price Target
- $12.24 (29.6% Upside)
Investing in tech stocks requires high-risk tolerance. Undoubtedly this sector has the potential to deliver gains that outpace the broader market. But it’s also prone to pullbacks and corrections. Just in the last two years, we’ve seen three or four times when tech stocks have rolled over.
At times like these, it’s tempting to bail out, but you can’t. If you’re looking for growth in stocks, there is no other sector that is going to deliver. But here’s where I introduce a note of caution. You have to choose wisely. Many tech stocks are small-cap stocks that don’t have a defined revenue stream. Others may be more mature but are overpriced even after a broad pullback.
The key to buying on the dip in tech stocks is to find stocks that are leaning into societal trends and also are still reasonably priced. The stocks in this presentation fit that description. If you’re not ready to jump on them right now, you can put them on your watch list and receive alerts through your MarketBeat subscription.
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