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3 Top Tech Stocks to Buy Right Now

By Danny Vena, Chris Neiger, and Leo Sun - Feb 8, 2018 at 8:27AM

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If you looking for some of the best investments in technology, look no further than Netflix, Apple, and Facebook.

With the way the market has performed over the last several days, it might be easy to forget that Wall Street is in the midst of one of the greatest wealth-creating runs in its history. Since bottoming in March of 2009, the S&P 500 has gained nearly 300%. The technology-laden NASDAQ Composite has done even better, gaining over 450%. Given that performance, investors might have difficulty identifying those investments that still have gas left in the tank.

With that in mind, we asked three top Motley Fool investors to choose companies that they believed still provided compelling opportunities in the tech sector. They offered convincing arguments for Netflix, Inc. (NFLX -4.44%), Facebook, Inc. (META -4.37%), and Apple Inc. (AAPL -2.80%).

Rolls of various denominations of US banknotes.

Buy these tech stocks now. Image source: Getty Images.

Binge-worthy stock

Danny Vena (Netflix): One of the best investments over the last decade has been streaming pioneer Netflix, which has returned over 7,000%. While some investors may feel they've missed the boat on this opportunity, I believe the company is just getting started.

When the company ramped up its international expansion in early 2016, it vastly increased the total addressable market for its service. While estimates vary, conservative forecasts place Netflix's potential customer base between 400 million and 450 million. 

In its most recent quarter, Netflix subscribers crested 117 million. This illustrates that the streaming service could potentially triple its existing customer base over the next decade.

Three children dressed in Ghostbusters costumes in a scene from Stranger Things 2 in a shot from the

Netflix is leveraging its original content. Image source: Netflix.

Additionally, Netflix is currently investing billions to build out its content library in countries across the globe. Once those libraries are well-stocked, it will be much less expensive to maintain them.

The U.S. is Netflix's most mature geography, and it provides investors with a compelling example of what Netflix can achieve worldwide. The company doubled the contribution margins from its U.S. market from 16% in 2012 to over 37% in 2017. Compare that to just 4.4% for its aggregate international markets, and the staggering potential for growth becomes apparent.

As Netflix has continued to expand its self-produced original content, it has reported that it is more cost-effective on a per-subscriber basis. As the company closes in on its goal to produce half of its original content, this will help accelerate greater profitability.

Netflix isn't for the faint of heart, sporting a forward PE of 97. But considering the worldwide opportunity and all of the potential paths to improving results, that number begins to seem downright reasonable. 

Many investors have bemoaned not buying Netflix sooner, but now is the time -- better late than never!

The social media giant that just keeps growing

Chris Neiger (Facebook): Even with more than 2 billion users and a market cap of over $550 billion, Facebook is still growing hand over fist. The company's fourth-quarter 2017 results showed Facebook's top line spike 47% year over year, to $12.9 billion, earnings per share skyrocketed 83%, and Facebook's monthly active users were up 14%.

Facebook isn't doing well just because it has a massive platform (which, of course, includes the popular Instagram), it's also benefiting from its ability to maximize its ad sales to its users. Facebook CFO David Wehner said on the fourth-quarter earnings call that the company has good opportunities to improve its Facebook and Instagram ad businesses in 2018 and added, "We continue to improve the effectiveness of our ads which helps drive ROI for advertisers and demand for our ad products."

The Facebook thumbs up logo on a street sign outside its headquarters.

Investors should "like" Facebook. Image source: Facebook.

The company learned a little bit about it itself in 2017 after discovering the influence of divisive ads on its platform from Russia. The company has worked to squash those and is also trying to display more relevant posts on Facebook from actual people -- and less from companies -- which Facebook says has already resulted in a decrease in time spent on the platform. The company sees this as a good thing, as it tries to increase the quality of posts users see, and not just the quantity.

Facebook's shares are up about 45% over the past 12 months, but don't start thinking that those gains mean the company's run is coming to an end. The social media juggernaut has proved it can outpace smaller rivals like Snapchat (mainly by copying what they do), and it also has plenty of cash on hand to invest in new projects, both of which should allow Facebook to remain the king of the social media hill for years to come.

A value stock hidden in plain sight

Leo Sun (Apple): Apple recently crushed analyst expectations for its first quarter with 13% sales growth and 16% earnings growth, but many investors weren't happy with its iPhone shipments and revenues -- which both fell year over year.

Those concerns are valid, since 70% of Apple's revenues came from the iPhone during the quarter. However, Apple still generated growth where it mattered the most -- in China, where its revenues rose 11% annually, and in services, which posted an 18% annual jump in revenue and accounted for 10% of its top line.

The growth of Apple's services revenue matters for two reasons. First, it measures the growth of its software ecosystem (Apple Pay, Apple Music, AppleCare, and other services), which locks in customers and keeps them away from Android devices. Second, it's a higher-margin business than its hardware businesses, which face tough competition across the smartphone, tablet, and PC markets.

An iPhone laying on its side.

iPhone is the only thing powering Apple's sales. Image source: Apple.

Wall Street still expects Apple's revenue and earnings to rise 17% and 25%, respectively, this year, which are remarkable growth figures for a stock that trades at just 13 times forward earnings. The stock also pays a decent forward yield of 1.6%, which is supported by a low payout ratio of 26%.

Apple still has plenty of growth opportunities in adjacent markets like streaming media, augmented reality, and connected cars -- and it can tap into its cash hoard of $285 billion to enter those markets. Therefore, investors should stop fretting over the iPhone and realize that Apple is a value stock hidden in plain sight.

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Stocks Mentioned

Netflix, Inc. Stock Quote
Netflix, Inc.
$180.75 (-4.44%) $-8.39
Apple Inc. Stock Quote
Apple Inc.
$137.69 (-2.80%) $-3.97
Meta Platforms, Inc. Stock Quote
Meta Platforms, Inc.
$162.08 (-4.37%) $-7.41
NASDAQ Composite Index (Price Return) Stock Quote
NASDAQ Composite Index (Price Return)
$11,215.68 (-2.68%) $-308.56
S&P 500 Index - Price Return (USD) Stock Quote
S&P 500 Index - Price Return (USD)
$3,827.21 (-1.87%) $-72.90

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

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