The technology sector stands out as one of the best starting points for investors looking for innovative returns. In addition to many companies in the space having highly scalable business models, technology also plays a decisive role in shaping almost every other business sector.
We asked three Motley Fool employees to present the profile of their main technology choice for the new year. Keep reading to see why they think Glu Mobile (NASDAQ: GLUU), salesforce.com (NYSE: CRM)and Qualcomm (NASDAQ: QCOM) are on the way to being big winners.
Image source: Getty Images.
Looking for big gains? Start small
Keith Noonan (Glu Mobile): When it comes to naming the main technology stocks for 2021, Glu Mobile can certainly seem like a bit of an odd choice. If you asked video game fans and industry watchers to name the most powerful and influential companies in the space, you probably wouldn’t get many respondents offering Glu Mobile.
Activision Blizzard, Tencentand Take-Two Interactive these are just a few of the many names in the industry that are substantially larger and richer in resources than Glu. This is a small-cap company valued at about $ 1.6 billion, but there is also a lot to like about stocks at current prices.
On the one hand, the assessment still seems quite reasonable in the context of strong performance and favorable winds of long-term growth for the sector. The company’s shares are traded at about 17.5 times the expected earnings this year and just 2.5 times the expected sales. Glu may not be able to match the industry titans when it comes to development and marketing budgets, but he has a solid collection of video game properties that are delivering reliable performance.
These franchises are showing good results thanks to the continuous content updates that are keeping players engaged, and management projects that their current training alone will be enough to increase bookings by 8% to 10% next year. Glu is also expected to launch four new intellectual properties in 2021, which signals that the company may be entering a new phase of dramatic growth.
In my book, Glu Mobile’s shares currently represent the concept of “growing at a reasonable price”. Its main franchises are performing solidly, major new launches are on the way and the company is likely to make acquisitions in the near future to accelerate its growth. He is also experimenting with integrating real-world e-commerce stores into his titles. The stock still looks valued at a low cost, and success, even for a small number of its growth bets, can take that small limit to heights.
The Titan of Cloud Software
Joe Tenebruso (Sales force): Investment in successful technology often comes down to identifying powerful long-term trends. Cloud computing, big data and remote work are three such megatrends – and at their intersection is Salesforce.
Salesforce is a global leader in cloud-based customer relationship software. It dominates the industry, with a larger market share than its four closest competitors combined.
The acquisitions helped Salesforce enter new markets. Thanks in part to purchases from MuleSoft and Tableau, Salesforce is now a leader in data integration and visualization. By helping its customers better aggregate, analyze and understand their data, the cloud leader has taken root in his customers’ operations.
Today, Salesforce is focused on the fast-growing business communications market. In December, it closed an agreement to acquire Slack Technologies (NYSE: WORK). Salesforce intends to combine Slack’s workplace messaging platform with its cloud software to “transform the way everyone works in a fully digital world and from anywhere,” according to CEO Marc Benioff.
While acquisitions can be risky, Benioff and his team have a proven track record of success. They were able to integrate the previous acquisitions and create a whole that is much larger than the sum of its parts. Salesforce’s solid financial results are a testament to its operational excellence. Cloud titan’s revenue increased 20% year-over-year, to $ 5.4 billion in the third quarter, while its operating cash flow increased 14%, to $ 339 million.
With cloud computing, big data and remote working trends still in their early stages, investors can expect much more growth for Salesforce in 2021 and beyond.
A strong connection to 5G profits
Will Healy (Qualcomm): Thanks to 5G, investors can connect with this chip stock at a new level. Since Apple now sells 5G compatible devices, the upgrade cycle has started for real. With 5G offering speeds exponentially higher than 4G, most users are likely to upgrade at some point.
Qualcomm benefits because it is the only manufacturer of an essential 5G chipset. This should remain true at least for the foreseeable future. Last year, Qualcomm persuaded a court to overturn a ruling that Qualcomm was a monopoly.
Apple also dropped its lawsuits against Qualcomm in 2019. However, it bought Intelsmartphone chipset business, probably someday to offer a competing product.
You can understand why Apple wants a piece of that market. This deal is so big that Grand View Research predicts a compound annual growth rate (CAGR) of 63% until 2027.
These increases have already started to materialize. In its last quarter, adjusted revenue increased 35% over the same quarter last year. Adjusted earnings per share increased 86% in the same period.
In addition, despite the recent growth of Qualcomm’s shares, investors may still not appreciate the value proposition. Even with the higher movement, Qualcomm’s future P / E ratio is around 21. This is extremely cheap, especially considering Qualcomm’s potential growth and market position.
Finally, with the retirement of CEO Steven Mollenkopf, Qualcomm insider Cristiano Amon will take over. Amon led Qualcomm’s 5G strategy. Upon taking charge, Amon can bring an additional 5G focus that should help take Qualcomm further in 2021 and beyond.