The tech sector has been rattled in early 2018. Many familiar names delivered strong returns in January and February, while others saw their share prices falling -- sometimes for no good reason.
Some of the tickers in that second category look like great buys right now. To help you separate the beaten-down winners from the tech stocks that deserved a haircut in early 2018, we asked your fellow investors here at The Motley Fool to share their idea of the most timely names in this sector.
A niche play in the cybersecurity market
Chris Neiger (Okta): There's no debating that many companies need better ways to protect their data, both for their customers' sake and their own. Okta helps fill that role by helping companies set up and manage the correct permissions for their employees. This includes login credentials on a computer or smartphone, allowing access to sensitive files, or even giving third-party users access to software.
For example, Adobe uses Okta for its own employee logins and internal access and has since expanded the login credentials system to include Creative Cloud users. This very specific security market is called identity and access management (IAM) -- and it'll be worth an estimated $15.9 billion by 2022.
The reason I'm adding Okta to this list is because of the company's stellar growth in the IAM space right now and its huge potential to continue growing as a key player. Okta released its preliminary fourth-quarter results recently (it'll report the official version on March 7), and revenue increased by about 58.5%, billings jumped by 65.5%, and customer growth improved by 40%, all year over year. Not only are the company's sales and customers growing quickly, but Okta has also increased the amount of customers that annually spend more than $100,000 by 56%. Full-year fiscal 2018 sales popped by 62% as well, compared to 2017.
Okta just went public this past April, and it faces competition from tech juggernauts Microsoft and Salesforce.com, but this fast-growing security company is already proving it can keep pace with the bigger players. Both Forrester Research and Gartner have named Okta a leader in IAM and Identity-as-a-Service markets. Investors will have to stomach the fact that Okta is unprofitable right now, but the company's current sales and customer growth, early leadership position, and potential to benefit from the broader IAM market's growth make this tech play worth considering.
It's time to pounce on this rare discount
Anders Bylund (American Tower): This owner and operator of cell towers and other radio network connection sites had a stellar year in 2017. Share prices rose 35% as American Tower delivered a string of solid earnings reports and clarified its global growth strategy.
American Tower's fourth-quarter report in February was no different. Sales and profits surged past the midpoints of management's guidance targets, driven by high growth in Latin America, India, and the Europe, Middle East, and Africa (EMEA) region. Looking ahead, the same key markets should unlock continued growth in 2018, driving adjusted funds from operations (AFFO) profits 11% higher in a 7% revenue boost.
You might have expected this strong report to inspire soaring share prices, but that's not what happened at all. Instead, at least two analyst firms lowered their target prices on American Tower's stock, and share prices are now down 6% so far in 2018.
That's not a huge discount next to the S&P 500 index's flat year-to-date return, but it's still a rare opportunity to buy into this long-term winner at an attractive price. If you've been tracking American Tower with the intention to pounce on silly price drops, this would be it.
Feel free to pounce on American Tower right now. In fact, I highly recommend it.
A fallen angel
Brian Feroldi (Universal Display): Universal Display -- a leading provider of organic light emitting diode (OLED) technologies -- was one of the hottest stocks in the market in 2017. However, shares have been in a funk as of late. The stock has fallen by more than a third in the last two months alone. What gives?
Your first inclination might be to assume that the company just reported rotten quarterly results, but that's not the case at all. Sales rose by 55% in the fourth quarter, and adjusted EPS jumped by 72%. The company also just announced that it successfully renewed a deal with its largest customer and signed a brand-new one with China's largest display maker.
So, what can explain the sell-off? You can place the blame on guidance. Management stated that some sales in the fourth quarter were pulled forward from 2018. While that juiced the company's 2017 numbers, it will act as a drag on 2018's results. When combined with calls for "industry capacity growth to take a bit of a breather this year," management's revenue projection for the upcoming year came up short of expectations. That's a big no-no when your stock trades at a very high multiple.
While I understand why Wall Street is disappointed with the delay, I think this sell-off is overdone. After all, management is still projecting top-line growth for all of 2018, and analysts expect the company's growth rate to accelerate heading into 2019. In other words, the company's days of hyper-growth are just taking a breather, not sputtering out altogether.
Meanwhile, the drop has afforded investors the chance to buy into a fascinating growth story for around 30 times next year's earnings estimates. While that's certainly not cheap, the long-term future of OLED technology looks so bright that I think it makes sense to buy while traders are running for the hills.
Teresa Kersten is an employee of LinkedIn and is a member of The Motley Fool's board of directors. LinkedIn is owned by Microsoft. Anders Bylund owns shares of American Tower and Universal Display. Brian Feroldi owns shares of Adobe Systems, American Tower, and Universal Display. Chris Neiger has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends American Tower and Universal Display. The Motley Fool has the following options: short April 2018 $130 calls on American Tower and long January 2019 $80 calls on American Tower. The Motley Fool also recommends Adobe Systems, Gartner, Okta, and Salesforce.com. The Motley Fool has a disclosure policy.