Simply put, if you want market-beating gains, you need technology stocks in your portfolio. This has been acutely true in the aftermath of the Great Recession, as the tech sector has outperformed the greater market and led the subsequent nine-year rally.
With that in mind, we asked three Motley Fool contributors which technology companies are great buys right now. Read on to find out why TSMC (NYSE:TSM), Alphabet (NASDAQ:GOOG) (NASDAQ:GOOGL), and Momo (NASDAQ:MOMO) made the cut.
The trade war won't hurt TSMC
Anders Bylund (Taiwan Semiconductor Manufacturing): Investors in the world's largest semiconductor manufacturing specialist were loving life earlier this year. In March, the Taiwan Semiconductor Manufacturing Company (friends simply call it TSMC) had seen share prices double in three years. That was triple the broader market's 31% gains over the same period.
Seven months and one Chinese–American trade war later, the S&P 500 has traded roughly sideways, but TSMC's shares plunged 17% lower. That drop includes a 15% plunge in the last month alone, making this an opportune time to jump on Taiwan Semi's rock-solid bandwagon.
Yes, the trade war is a real thing. No, it has not damaged TSMC's business in any measurable way. And if it continues, the company's management is not worried about future impacts from the transpacific tension.
Here's how TSMC CEO C.C. Wei put it in an earnings call two weeks ago:
"For the short term, we did not see any impact, if there's any at all. So our China customers, no, they did not change their behavior," Wei said according to a Seeking Alpha transcript. "TSMC has been proud to be the everybody's foundry. So if there's a trade tension, if there is, and if it continues, I think that TSMC -- the impact to TSMC would be less or minimized because if -- we still need the semiconductor device, and TSMC is everybody's foundry, right, so whether they produce here, produce there, it's all TSMC's customer."
That's one of the upsides of dominating an industry that serves many large customers around the globe. TSMC is in a position to just roll with the punches and keep delivering strong business results regardless of the climate in international politics.
So this stock is on sale for all the wrong reasons. Trading at just 16.5 times trailing earnings, TSMC's stock is primed for a strong bounce.
Digital advertising will continue to power Alphabet's growth
Jamal Carnette, CFA (Alphabet): While we don't believe in market timing here at The Motley Fool, there's nothing wrong with taking advantage of temporary sell-offs to establish long-term positions in high-quality companies.
Alphabet's recent earnings announcement was poorly received by investors. Although Alphabet grew revenue 22%, reporting $33.7 billion in the quarter, including a 29% increase in the strategic other revenue division, the company missed analyst consensus by approximately $340 million. Investors overreacted and sold off the company as much as 5% on the news.
Despite the temporary weakness, Alphabet's long-term drivers remain intact. Worldwide digital advertising is expected to grow 11.8% per year through 2022, according to advertising analytics firm eMarketer, by stealing market share away from legacy outlets like television and print. Additionally, Alphabet's future-focused moonshots will finally start showing up on their income statement, specifically its autonomous-driving car project Waymo. Long-term investors should welcome Alphabet's recent stock sell-off.
The "Tinder of China"
Leo Sun (Momo): Momo is often called the "Tinder of China." Momo's namesake app lets users find each other via shared profiles and locations. Tantan, which it acquired earlier this year, is a clone of Tinder. Momo offers a premium subscription tier for users, which provides better AI matchmaking, higher exposure in searches, and other features.
However, Momo's core growth driver is live streaming video, which it added to its namesake app last year. Momo monetized those user-generated video streams with virtual gifts, which viewers could purchase for their favorite broadcasters.
Momo's streak of triple-digit sales growth decelerated to the double digits over the past three quarters, but its growth remains solid. Monthly active users (MAUs) on its core app rose 18% annually to 108 million last quarter, while its total number of paid users (including Tantan users) grew 63% to 11.6 million.
Momo's total revenues rose 58% annually to $494.3 million, with live video revenues accounting for 83% of that total. Its non-GAAP net income rose 90% annually to $140.2 million, and its GAAP net income surged 94% to $117.8 million. Analysts expect its revenue and non-GAAP earnings to grow 38% to 44%, respectively, this year.
Those are incredible growth rates for a stock that trades at just nine times forward earnings. Momo's stock is cheap because investors fled Chinese tech stocks amid fears about the trade war and rising interest rates. Yet the sell-off gives investors a rare opportunity to buy a great growth stock at a bargain-bin price.
Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool's board of directors. Anders Bylund owns shares of Alphabet (A shares). Jamal Carnette, CFA owns shares of Alphabet (C shares). Leo Sun has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Alphabet (A shares) and Alphabet (C shares). The Motley Fool recommends Momo. The Motley Fool has a disclosure policy.