The Nasdaq Composite index is off to a great start in 2016, surging 13% higher year to date and nearly doubling the S&P 500's returns. There are no guarantees that the tech-heavy index will continue to crush the market in 2017, but we called together three top Motley Fool contributors to share their best tech investments for this moment in time.
It's time for this young stock to find its sea legs
Anders Bylund (Twilio): Twilio is a provider of cloud-based communication tools around which other companies can build their own digital voice, video, and messaging applications. It's a small cap and a fairly fresh addition to the public markets, having launched its original share offering in June 2016.
Investors are still feeling out this new stock. Share prices topped out above $70 in September, only to crash back down to $30 per share in early November. Sharp drops and jumps are par for the course here, often triggered by Twilio's earnings reports.
The recent first-quarter release was no exception. Twilio leveraged its IPO cash into a 40% higher customer count and 47% higher quarterly sales, compared with the year-ago period. But leading customer Uber is kicking its Twilio habit, leading to deep cuts in Twilio's full-year earnings guidance.
Twilio shares fell as much as 29% the next day.
The stock now trades more than 60% below those late-September highs and 13% below Twilio's first day of trading. I'll admit that it's hard to draw a bead on Twilio's true long-term value, since every quarterly report so far has showed negative operating profits, even deeper net losses, and smaller but still significant cash burns. If you're into rock-solid financial fundamentals, Twilio is not your bag.
But if you can harness some risk and uncertain valuations, buying some Twilio shares on deep dips like this one could make plenty of sense. The Uber situation is not ideal but also not the end of the world, thanks to explosive growth in the number of client accounts. Top-line sales are following suit, and gross margin stands at 59% today -- up from 55% at the end of March, 2016.
Twilio's management is still learning the ropes of setting correct and reachable expectations, but the company is also doing many things right. And right now, the stock is on sale -- at least compared with Twilio's short trading history. Might be worth a curious nibble, methinks.
This winner will keep on winning
Steve Symington (Sierra Wireless): When I singled out Sierra Wireless in February as a tech stock that could make you rich, shares of the Internet of Things pure play were already up big so far in 2017. Sure enough, Sierra Wireless stock continued to rebound last week, climbing another 15% on Friday, after it announced strong first-quarter 2017 results. But with shares still well below their 2015 highs -- when shorter-term mobile headwinds and weak demand from certain existing OEM customers caused the stock to plunge -- I think Sierra Wireless still has plenty of room to rise from here.
After all, the company is not only enjoying renewed demand from those established OEM customers, but also seeing programs ramp up from new customers in its core OEM segment -- where revenue climbed a modest 10% year over year, to $133 million, last quarter. Meanwhile, Sierra Wireless' enterprise-solutions business climbed 44.8%, to $21.7 million, thanks to a combination of demand for new products, investments in go-to-market capabilities, and contributions from acquired businesses.
Most recently on the latter, Sierra Wireless astutely spent $3.2 million to acquire GlobalTop Technology's Global Navigation Satellite System business, expanding its portfolio of cellular, Wi-Fi, and Bluetooth modules to improve its position in key markets such as telematics, drones, and automotive. Meanwhile, Sierra Wireless is only just getting started in building its pipeline for the younger cloud and connectivity services segment -- where revenue rose 2.1%, to $7.1 million -- by drawing upon the customer bases and complementary products of its more mature business lines.
In short, Sierra Wireless is rightly focused on positioning itself to take and hold market share in these early stages of its long-term growth story. And I think investors with the foresight to pick up shares before the rest of the market realizes just how big that story is stand to be handsomely rewarded.
Falling behind the tech stock surge
Tim Green (Qualcomm): While the tech-heavy Nasdaq has been carving out all-time highs, shares of mobile-chip kingpin Qualcomm haven't been so lucky. The stock has slumped over the past few months because of legal feuds with both Apple and the Federal Trade Commission. The former accused the company of charging excessive royalties, and the latter charged it with anti-competitive business practices.
The bulk of Qualcomm's profit comes from licensing, so any threat to that cash cow of a business should be taken seriously by investors. Qualcomm was forced to slash its third-quarter guidance after Apple informed it that it was withholding royalty payments to its contract manufacturers. Qualcomm expects revenue to take a $500 million hit compared with its previous guidance.
How these legal matters ultimately shake out is impossible to predict. But investors who believe that Qualcomm will prevail, or at most pay a small fine and get on with its business, can take advantage of the uncertainty and pick up shares at a depressed price. Backing out the net cash and investments on the balance sheet, Qualcomm trades for just over 11 times fiscal 2016 earnings. The bottom line will take a hit in the near term because of Apple's actions, but a positive outcome for Qualcomm could send the stock soaring down the road.
Anders Bylund has no position in any stocks mentioned. Steve Symington owns shares of Apple. Timothy Green has no position in any stocks mentioned. The Motley Fool owns shares of and recommends Apple, Qualcomm, and Sierra Wireless. The Motley Fool also recommends Twilio. The Motley Fool has a disclosure policy.