The tech sector is always packed with exciting high-growth investment ideas. Some of them fizzle while others go on to bigger and better things. One way to separate the wheat from the chaff is to ask the experts.
So we did.
We went to a handful of your fellow investors here at The Motley Fool to get their best high-tech investment ideas for March 2018. Read on to see how they came up with Alarm.com (NASDAQ:ALRM), PayPal (NASDAQ:PYPL), and T-Mobile US (NASDAQ:TMUS).
This digital payment leader just keeps growing
Chris Neiger (PayPal): PayPal may not seem as exciting as other tech plays out there, but the company's continued growth in online and mobile payments, along with tapping the growing peer-to-peer payments (P2P) segment, makes this company a compelling tech investment right now.
PayPal reported its fourth-quarter 2017 results at the end of January and the company more than delivered for investors. Revenue was up more than 25% year over year to $3.74 billion, net income from operations jumped by 58.9% from the year-ago quarter, and diluted earnings per share were up 56% to $0.50.
Some investors got spooked by the news that PayPal would no longer be the exclusive payment provider for eBay. But when you consider that the amount of total payment volume coming from eBay was already on the decline and the fact that the parting opens up the possibility for PayPal to work with more businesses, I think any investor fears are overblown.
Additionally, PayPal added 8.7 million active customer accounts in the quarter and saw its total payment volume (TPV) jump by 32% to $131 billion. Venmo, the company's popular P2P payment app, processed $10.4 billion in payment volume in the quarter, which was an 86% year-over-year increase, and a new record for the company. I think investors can expect Venmo's payment volume to increase, especially as the mobile P2P market increases from $158 billion in transactions this year to $244 billion by 2021.
PayPal doesn't get the same enticing headlines that tech companies dabbling in artificial intelligence, driverless cars, or other tech trends do. But for investors looking for a long-standing tech company that's doing a fantastic job of growing its business and finding new ways to expand its revenue streams with P2P payments, PayPal looks like a solid bet.
Time for T-Mobile to take off again?
Anders Bylund (T-Mobile US): Shares of the third-largest U.S. telecom have nearly doubled over the last three years, driven by a 33% increase in annual revenue and industry-leading growth in EBITDA profits. If anything, T-Mobile's business has only increased its quality over the last year while larger rivals Verizon Communications (NYSE:VZ) and AT&T (NYSE:T) have faltered. The magenta network's "Un-carrier" tactics are paying off.
The market momentum, however, petered out in 2017.
Despite steadily growing wireless subscriber numbers and rising profits, delivered at a time when AT&T and Verizon are struggling to hold on to their existing customers, T-Mobile's shares have traded almost exactly sideways over the last 52 weeks. Meanwhile, the S&P 500 index rose 16%. Sure, AT&T's chart looks grimmer and Verizon's is running neck and neck with T-Mobile, but it seems pretty obvious to me that this stock deserves to trade at a growth-boosted premium over its staler rivals.
You know what they say about buying when there's blood in the streets, right? On that note, I see T-Mobile's deep-discount share prices as a buy-in opportunity. This company is going places and the stock will eventually rebuild that old momentum. As a result, it's one of the most tempting tech tickers on the market right now.
A secure investment
Brian Feroldi (Alarm.com): I'm very picky when it comes to investing in the technology sector. Disruption can happen anytime and consumer preferences can change quickly. These factors make it difficult for investors to separate the long-term winners from the flashes in the pan.
To deal with these realities, I've developed a rigorous checklist that I put any potential company through before I even consider it as a potential investment. One tech stock that scores very well on my checklist is Alarm.com. This company provides cloud-based software for that is used by professional security companies, enabling them to provide customers with a wide range of services (video recording, motion sensing, temperature monitoring, remote garage door opening, and more).
Why do I think Alarm.com is a solid tech investment? Let me count the ways:
- The company is growing fast and is profitable.
- Most of its revenue is recurring in nature.
- Both co-founders are still actively involved in the business.
- Insiders and directors hold 47% of shares outstanding.
- The smart-home security market is poised for rapid growth in the years ahead.
Despite these bullish facts, shares of Alarm.com have sold off recently over fears that competition in the do-it-yourself home security space is heating up. While that's a risk worth watching, I'm comforted by the fact that Alarm.com caters to the needs of professional security installers, not the DIY crowd. I believe that some consumers will always be willing to pay for the help of experts, especially when it comes to something as important as home security.
And yet, the concerns about competition have knocked down Alarm.com's valuation so low that shares are currently trading for less than 30 times next year's earnings estimates. I think that's an attractive price to pay for such a high-quality growth business.
Anders Bylund owns one share of T-Mobile US. Brian Feroldi owns shares of Alarm.com Holdings. Chris Neiger has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends PayPal Holdings and Verizon Communications. The Motley Fool recommends Alarm.com Holdings and T-Mobile US. The Motley Fool has a disclosure policy.