Given the unpredictable, fast-changing nature of technology today, many people understandably avoid holding tech stocks in their portfolio. But for astute investors who know where to look, buying and holding high-quality tech stocks can be a fantastic way to beat the market over the long term.
So we asked three top Motley Fool contributors to each choose a tech stock they think you would be wise to consider buying right now. Read on to learn why they picked iRobot (NASDAQ:IRBT), Intel (NASDAQ:INTC), and Okta (NASDAQ:OKTA).
Don't be fooled by iRobot's plunge
Steve Symington (iRobot): iRobot fell hard last week after the home-robotics leader announced first-quarter sales had climbed 9.5%, falling short of the roughly 16% growth Wall Street was expecting. But I think the market got this one wrong.
iRobot management told investors earlier this year that growth rates would be highest in the second and fourth quarters because of the timing of new product introductions. And during this quarter's subsequent conference call, iRobot insisted its first-quarter growth was in line with its own expectations -- helped by strong demand for its high-end Roomba's despite recent price increases to offset the impact of tariffs -- and reiterated full-year guidance for 2019 revenue to increase roughly 17% to 20% from 2018.
It probably didn't help that iRobot shares had already more than doubled in the year leading up to its report. But for patient, long-term investors, I think the pullback presents a great opportunity to consider opening or adding to a position in iRobot today.
Intel looks cheap for all the wrong reasons.
Anders Bylund (Intel): This semiconductor giant fell on hard times last week. First, Intel reported solid first-quarter results but also lowered set its full-year guidance targets. Then the company announced that it will exit the mobile modem market, dropping a product portfolio that served many high-end smartphones including both of Apple's (NASDAQ:AAPL) 2018 lineup of new iPhone models.
Investors absolutely hated that one-two punch of difficult news, sending Intel's shares 13% lower in the space of two days. At this point, the stock represents a mildly negative 52-week return and trades at just 11.9 times trailing earnings.
And I say it's time to pounce.
Yes, the semi industry is going through a lull at the moment. Some of that softness springs from smartphone buyers who prefer holding on to their existing handsets rather than springing out a thousand dollars for the latest and greatest flagship with a limited performance boost and few groundbreaking new features. It's also a chicken-and-egg situation where handsets and mobile service providers have to implement 5G wireless technologies in some sort of economically sensible lockstep. Furthermore, political tensions between the U.S. and China are still weighing on the high-tech trade across those borders.
But these issues won't last forever and Intel is poised to make a full recovery when the networks get going with their 5G rollouts. Data center chips should follow suit as 5G networks will provide a fantastic technical platform for explosive growth in IoT devices sending data back to their home base for processing.
As for the mobile modem segment, Apple and friends have lots of leverage to push their component costs lower. Therefore, Intel's profit margins on these chips were slim and you can't make up for negative profits per unit by shipping larger volumes. So the company is backing out of an unprofitable commodity market here. As an Intel shareholder myself, I don't mind this at all.
In short, I see nothing wrong with Intel in the long run. The stock is trading down based on flimsy short-term challenges. Might as well take advantage of these deeply discounted share prices.
Tech investors should identify with this stock
Chris Neiger (Okta): Okta may be one of the best tech stocks you've never heard of. Its share price is up more than 300% over the past three years, its revenue skyrocketed 50% in the most recent quarter, and its business is built on the fast-growing, but mostly untapped, industry of identity access management (IAM).
IAM, where users are granted specific access to certain areas of a company's files or website, is how companies manage critical data access for users. The industry is expected to grow into a $22.7 billion market by 2025, and Okta is leading the charge. The company reported its fourth-quarter results last month, and customer growth is up 40% year over year to 6,100. Even more impressive is that the number of its customers that are spending $100,000 or more annually with Okta increased by 50% from the year-ago quarter.
Investors should know that Okta isn't profitable right now, but the company is making strides in some key financial metrics. Okta's gross margin improved in the most recent quarter to 72.8%, and the company had its second quarter of positive free cash flow (FCF), with FCF reaching $4.8 million in the fourth quarter.
For investors looking for a tech stock that's firing on all cylinders and still has room to run, Okta may just be just the company you've been searching for.
The bottom line
We certainly can't guarantee any given stock will go on to produce outsized returns. But with the questionable declines endured by iRobot and Intel of late, and with Okta well-positioned to sustain its growth while making progress toward sustained profitability, these contributors believe all three stocks are poised to do just that. Consider putting your money to work accordingly.