Like many of you, I've been feeling the pain that the recent market pullback has caused many investors. As an investor in mostly technology stocks, the pullback has been especially brutal for me.
However, while many investors find themselves paralyzed when stocks decline substantially, I like to view such pullbacks as opportunities to get in at a good price on some high-quality stocks that I've been eyeing for a while.
I'd like to highlight three stocks that tech investors might want to consider. The companies included here have the following characteristics:
- Leaders in their respective fields: While there's good money to be made in betting on an up-and-comer within an industry, I often prefer the safety that comes with a well-established, high-quality company.
- Strong balance sheet: A strong balance sheet is a critical component to ensuring peace of mind when it comes to technology investments.
- Healthy end markets: A great company operating in a poor industry can sometimes be a very frustrating investment; that's why I'm looking for solid companies operating in good end markets.
With that in mind, here are the three stocks.
No. 1: Qualcomm
The first technology stock I like is Qualcomm (QCOM 1.45%). The company has a fortress of a balance sheet, with over $32 billion in cash and marketable securities on the books. Management's guidance has projected revenues of between $26 billion and $27.5 billion for the year and earnings per share of between $4.37 and $4.57 on a GAAP basis.
It's a financially sound company.
Additionally, Qualcomm's business is highly levered to the smartphone market as a whole. As long as sales of 3G and 4G LTE devices continue to grow, Qualcomm's technology licensing business (which collects royalties on 3G or 4G LTE device sales) should keep growing.
Qualcomm is also one of the world's largest chip vendors -- and is the leading vendor of smartphone-related chips -- selling applications processors, modems, connectivity chips, and more into a wide range of price points and smartphone vendors.
In a nutshell, Qualcomm is one of the largest -- and, in my view, safest -- smartphone-levered plays on the market today. At just under 18 times earnings, the stock isn't terribly expensive, and as long as the smartphone boom continues, Qualcomm's business should benefit as a result.
No. 2: Apple
It's hard to ignore the world's most valuable technology company by market capitalization and, arguably, the most loved technology company on the planet: Apple (AAPL -0.35%).
Apple has a monster balance sheet, with about $135 billion in net cash and marketable securities. Liquidity is unlikely to be a problem for the consumer-electronics giant for the foreseeable future. Apple is, according to current analyst consensus, set to earn about $6.34 per share this year.
That's a lot of cash.
More importantly, though, Apple's business has shown remarkable resilience. While chief rival Samsung has reported needing to spend heavily on promotions to move its products, Apple's recently released (and premium-priced) iPhone 6 Plus is still very difficult to buy, as demand for the phone looks very healthy.
Availability of the iPhone 6 Plus remains tight. Source: iStockNow.
It seems that Apple's brand, software, app ecosystem, and product quality all come together to make premium products that, year after year, customers seemingly can't get enough of.
With the stock at just a hair over 16 times earnings, technology investors looking for a highly profitable leader in its field (and probably sustainably so) should certainly give Apple a look, even near 52-week highs.
No. 3: Microsoft
Microsoft (MSFT 1.82%) is a cash-generating machine and also one of the best software companies in the business. With a net cash position of over $60 billion, and trailing-12-month free cash flow of nearly $24 billion, Microsoft is a company that's here to stay.
In fact, for all of the grief that Microsoft gets, it saw its devices and consumer revenue grow a whopping 42% to $10 billion in the last quarter. Its commercial segment revenue was up 11% to $13.48 billion.
With a company like Microsoft, it's important to look past the headline-worthy items like Windows Phone market share, Surface tablet sales, and even Xbox sales. They're important, but they represent only a small fraction of Microsoft's overall business. The lion's share of Microsoft's revenue comes from products that consumers don't really notice.
At any rate, given Microsoft's huge cash balance, the company's superb ability to generate cash, and a stock that's trading at just over 17 times earnings, I think that any meaningful dip in the stock price from factors unrelated to the company probably represents a compelling buying opportunity.
