Buying and holding technology stocks is a fantastic way for any investor to predictably beat the market over the long term. But in today's fast-changing world, it's not always easy to find high-quality tech names worthy of a spot in your portfolio.
So we asked three top Motley Fool contributors to each find a tech stock they believe investors would be wise to consider buying this month. Read on to learn why they like Roku (NASDAQ:ROKU), Micron Technology (NASDAQ:MU), and PayPal (NASDAQ:PYPL).
This streaming leader is just getting started
Steve Symington (Roku): With shares of Roku having more than doubled from their December lows -- including a nearly 48% pop in February after the media-streaming specialist posted strong quarterly results -- it might seem crazy to buy now.
Last week, however, shares pulled back hard after multiple analysts raised concerns over both its meteoric rise and increasing competition in the advertising space. Indeed, on the latter, industry giants like Disney and Comcast's NBCUniversal are prepping to launch their own exclusive streaming services that could potentially hamper available content on Roku's streaming platform.
But given Roku's relative strength and unique position in the streaming market, I think those concerns are overblown. One out of every four smart TVs sold in the U.S. last year were enabled with Roku's technology, and its number of active accounts last quarter soared 40% year over year to 27.1 million as a result. What's more, Roku has gone to great lengths to maintain a neutral position in the market, putting it in an ideal spot to leverage the network effect created by its massive, fast-growing user base to entice those industry behemoths to ultimately make their content available on Roku down the road.
In short, there's plenty of room for multiple businesses to win in today's evolving media landscape. And even after its recent pop -- which, lucky for you, was partly muted in last week's pullback -- I think Roku is a promising bet to that end.
Making memories and mucho money
Anders Bylund (Micron Technology): Memory-chip maker Micron Technology has seen its share prices sliding recently. The stock is down 13% over the last six months and 28% in 52 weeks. Skeptics argue that street prices for DRAM memory chips are falling too fast to support Micron's profits and, therefore, the stock's valuation.
Yet, Micron keeps producing fantastic profits and cash flows. And while the critics are plentiful, it's also easy to find analysts who see the memory-chip market turning back up before the end of the year. The profit factor is more than enough to support Micron's current share prices. The stabilizing chip market makes for a no-brainer kind of buying opportunity.
Sure, Micron's revenue growth is slowing down due to modest demand for memory chips plus a hint of oversupply. Top-line sales rose 16% in the first quarter, down from 71% a year earlier. That's still positive growth, though.
Further down the same quarter's financial statements, Micron's GAAP earnings rose 23% to $3.3 billion while free cash flows increased 26% to $2.1 billion. EBITDA profits kept up with its profit-metric siblings, gaining 28% to land at $5.1 billion.
If that doesn't look like a healthy business to you, I don't know what does. Many companies would kill for year-over-year growth in the 20% range and billion-dollar cash profits.
When falling share prices meet rising profits, you get rock-bottom valuation ratios. Micron is trading at just 3.3 times trailing earnings and 4.8 times its free cash flows. Next week's second-quarter report might not be the trigger event that eventually must snap the stock back to a realistic valuation, but this is a high-quality business trading at fire-sale share prices. You should take advantage of Micron's fire sale.
Cashless is king
Chris Neiger (PayPal): The rise of the smartphones has slowly introduced the idea that physical wallets -- with paper money and metal coins -- may be a bit of an archaic way to pay for things. After all, when you can press your finger to a button on your phone (or your face!) to pay for your coffee, who wants to fumble with exact change anymore?
PayPal has built itself into a household name as one of the most secure and easiest ways to pay for items online, and its recent moves are proving that PayPal is evolving into one of the premier companies for the coming cashless society.
The company is betting part of its future on Venmo, the popular person-to-person (P2P) payment app that it bought back in 2013. Venmo's payment volume (the dollar amount of transactions through the app) jumped 79% last year, reaching $62 billion, and the company expects Venmo payment volume of $100 billion this year.
PayPal's been busy coming up with new ways to monetize Venmo. Meanwhile, the company's mobile payment volume (the amount of transactions on PayPal through mobile devices) rose 40% in the fourth quarter and now accounts for 41% of all payments through PayPal.
And it's not just PayPal's mobile pursuits that are paying off. In the most recent quarter, PayPal's added 13.8 million new accounts, new acquisitions should give the company more opportunities to grow internationally, and total payment volume across all of PayPal's offerings was up 23% to $164 billion in the quarter.
Investors looking for a tech stock that's firmly established and betting big on the move to online payments, P2P, and a cashless society should strongly consider PayPal.
The bottom line
Nobody can guarantee any given stock will go on to beat the market, especially in the volatile tech space. But between Roku's large user base and industry position, Micron's enviable profitability and low valuation, and PayPal's bets on the future of digital payments and cashless commerce, these analysts think chances are high that each company will go on to do just that. And you might do well to invest accordingly.