It's easy to see why tech investors might begin and end their search with Apple (AAPL 0.11%). Its stock price continues to set record highs, and jumping on board the iTrain ahead of the all-important holiday season seems logical. But savvy investors would be wise to look beyond Apple for other high-growth opportunities. We asked three Motley Fool contributors to do just that, and they believe Google (GOOGL 10.17%) (GOOG 9.87%), Facebook (META 0.18%), and Qualcomm (QCOM 1.62%) are tech stocks poised to shine. Read on to find out why.
Tim Beyers (Google): I've owned shares of Apple for several years, with small initial holdings turning into multibaggers over the past five years. While I plan to hold for a while longer, I also can't bring myself to add. There are better stocks in my portfolio. Google in particular.
What makes the search king so special? Data and reach. Not long ago, the United Nations reported that 4 billion of the world's people have no access to the Internet. Despite being awash in information, there's so much we don't know about ourselves and the world around us. Google -- the world's most prolific data gatherer -- is uniquely positioned to help us solve this problem. Only Facebook comes close.
At the same time, our habits are changing. Chances are, you access a browser more than any other application, which is why Gartner estimates that Chromebook sales will jump 79%, to 5.2 million units this year, and then go on to nearly triple -- to 14.4 million units by 2017. Schools are ordering the devices running the Google-designed Chrome OS in droves, teaching kids that you don't need an operating system so long as you have the Internet.
Mobile is an equally huge opportunity, and Google is cashing in via Android. Researcher Strategy Analytics pegged its share of the smart handset market at north of 83% in Q3. Over the same period, Google's revenue from owned sites rose 20% year over year and 3% sequentially thanks to gains in mobile search, CFO Patrick Pichette said during last month's earnings conference call.
Apple is a great company and has been a great stock. Will it continue to be? Possibly, but when I look at the major computing trends, I see a world powered not by Macs and iPhones, but by Google services.
Tim Brugger (Facebook): It's been a heck of a year for Apple shareholders. Up over 46% year to date and bumping up against record highs daily, Apple's stock has performed admirably. But the door is open for other tech stocks to outperform it going forward. One of those opportunities is Facebook. To be sure, Facebook shareholders are also enjoying a nice 2014 -- its stock price has jumped 35% since Jan. 2 -- but there are several things working in its favor going forward.
For one, even after Facebook's stellar year-to-date performance, its share price is nearly 10% below its 52-week high, and it's trading at a mere 38 times next year's earnings -- hardly expensive for a high-growth performer like Facebook. But those are shorter-term attributes that make Facebook attractive; the real fun begins when investors look at the multiple revenue growth opportunities that lie ahead.
Unlike Apple, which relies so heavily on revenues from its latest iPhone iteration, just as it will next year, Facebook has a bevy of growth alternatives. While hardly all-inclusive, a few of Facebook's future growth opportunities include expanding its small business ad sales, monetizing the fast-growing Instagram property along with WhatsApp's 700 million monthly average users (MAUs), and the Oculus virtual reality solution for both mobile and desktop, along with mobile gaming.
As impressive as the above-mentioned list is, they could all be dwarfed by the introduction of video ads, particularly mobile video, across Facebook's multiple properties. Already, mobile accounts for over 1 billion of Facebook's 1.32 billion MAUs, and advertising on mobile devices, particularly video spots, is set to explode. Sure, investors can ride the Apple wave, but for long-term growth opportunities, Facebook is the best tech stock around.
Ashraf Eassa (Qualcomm): Apple is a great company that has delivered exceptionally well for its stockholders this year, and for many years prior, but I think there are better places in the tech world for fresh money today. In particular, one stock that's cheap -- trading at just 16.56 times earnings -- and allows investors to really cash in on the broader smartphone megatrend is Qualcomm.
Unlike Apple, which makes its money selling smartphones to customers, Qualcomm makes its money in two important ways. First, it holds key patents on wireless standards, which allows it to collect royalties on the sales of cellular devices. This means as the broader smartphone market grows, so too should Qualcomm's royalties.
Qualcomm also benefits from this trend as it sells chips into smartphones. Its arsenal of mobile-focused chips includes applications processors, cellular modems and RF solutions, low-power Wi-Fi, and more. While the mobile processor market is fiercely competitive -- though the competitor count continues to shrink -- Qualcomm has managed to grab the lion's share of the revenue available in this market. In fact, Strategy Analytics estimates that Qualcomm secured a whopping 53% revenue share during the first quarter of 2014.
However, Qualcomm's stock has been under pressure as it runs into some problems with customers in China either underreporting device shipments or outright selling devices without a license. Additionally, Qualcomm has also disclosed that it is under investigation by China's NDRC as well as two additional "competition agencies."
That said, while the situation seems ugly now, I'm betting that Qualcomm figures all of these issues out. Once it does, I think investor focus will shift back to its strong core businesses, leading to meaningful upside in the shares.
