Determining the "best" stock, tech or otherwise, isn't a straightforward proposition. A stock that fits one investor's risk tolerance, time frame, and objectives, could be entirely inappropriate for another.
However, the following three tech stocks are some of the best available in 2016 for investors in search of growth, income, and/or value. So without further ado, read on to learn why IBM (NYSE:IBM), Activision Blizzard (NASDAQ:ATVI), and Facebook (NASDAQ:FB) all make the grade as the best stocks in tech for 2016.
Growth and Income
IBM is not on the "buy" lists of many analysts. Though IBM did receive an upgrade recently from an analyst based on its consensus target price of $144.32 -- over 6% below IBM's stock price as of June 8 -- its clear pundits haven't bought into CEO Ginni Rometty's "strategic imperatives" transformation plans.
Too bad for them, because investors have quietly begun to get onboard, pushing IBM's stock price up 12% year to date. Why? Because IBM is making strides in leading the cloud, Internet of Things (IoT), and data analytics charge, each of which offers vast potential. Managed services delivered via the cloud is expected to become a $256 billion market in just two years, and IBM is already the recognized leader in the space.
Similar upside exists in IoT and big data analytics, all areas of strength thanks to IBM's strategic imperatives. With an annual run rate of $29.8 billion, IBM's transformational initiatives already account for 37% of total sales, and that figure is growing each quarter. For investors in search of income along with long-term growth potential, IBM's 3.65% dividend yield is one of the best in tech.
Despite Activision's 9% stock price pop since announcing earnings on May 5, it remains a bargain for growth investors. What makes Activision's lackluster year -- its stock is down about 2% -- is that it's coming off a spectacular quarter. It also dominates gaming, a market expected to reach $99.6 billion in revenue this year, and Activision's acquisition of King Digital Entertainment is already paying dividends.
King, maker of the Candy Crush series, among others, brought with it 463 million monthly active users (MAUs), pushing Activision's total to 544 million. Activision and Blizzard's in-game content revenue climbed 20% last quarter, but jumped 80% when the impact of King is accounted for. It's no wonder Activision reported record sales and earnings per share (EPS) last quarter, up 29% and 44%, respectively. And now with King fully integrated, Activision has upped its guidance for the year.
Activision's recent deal with Facebook to combine the online gaming and social media experiences could prove to be huge for both industry leaders. Gamers will soon be able to stream their games live, with the option for Facebook "friends" to subscribe. The deal with Facebook, the fact that Activision is trading at just 17.8 future earnings -- about half its current valuation -- combined with King's dominant mobile gaming presence, all translate to a world of upside, warranting a place for Activision Blizzard on the list of the best growth tech stocks for 2016.
No end in sight
If Facebook's impressive first quarter were an aberration, it wouldn't belong on a list of the best tech stocks. Facebook's advertising revenue during the three-month period grew 57%, to $5.2 billion; it more than doubled its income from operations, to $2 billion; and it boosted its MAUs to 1.65 billion. But far from being an aberration, performances like this have become the new normal at the social networking giant. Nearly half of the world's connected population visit their Facebook "friends" every month, and 1.09 billion users log on every day.
What earns Facebook's inclusion on the list of best tech stocks in 2016 isn't necessarily what it's done, but rather what it hasn't -- yet. Certainly the advent of video ads across Facebook and the monetization of Instagram have made a positive impact on its stellar financials, and that will continue.
But the reason Facebook is ideal for long-term investors in sea rch of years of steady growth is the 1 billion MAUs on its WhatsApp service and the 900 million users of Messenger: neither of which have been tapped for monetization. Toss in virtual reality (VR) headset king Oculus, and Facebook has myriad alternatives to continue its rise as the king of digital advertising.