The tech sector was the single biggest driver in the stock market's 2020 gains. Part of the remarkable performance stemmed from businesses and consumers rushing to digital channels amid coronavirus-related conditions, but the tremendous run also reflects mounting evidence that tech's overall integration with the economy and everyday life has been accelerated and will only become more entrenched and influential from here on out.
With that in mind, we asked three Motley Fool contributors to profile a technology stock that offers market-crushing upside even after the sector's eye-catching wins this year. Read on to see why they identified Glu Mobile (GLUU), Microsoft (MSFT -1.16%), and Taiwan Semiconductor Manufacturing (TSM 1.27%) as top stocks to buy before 2021 hits.
An overlooked ticket in a hot growth industry
Keith Noonan (Glu Mobile): The video game industry has enjoyed incredible growth over the last decade, and top companies in the space have delivered stellar returns for shareholders. The global audience for interactive entertainment grows every day, and heightened levels of engagement -- combined with increased opportunities for monetization -- are creating attractive risk-reward dynamics for growth-focused investors.
Much of the investing excitement naturally revolves around the giants of the industry, but investors would be wise not to sleep on Glu Mobile -- a small-cap player that appears to be on track for monster performance in 2021. The gaming company expects its bookings to grow between 8% and 10% in 2021 -- without accounting for contribution from new releases. Glu has at least three new titles on track for release next year, which suggests that the business is poised for blockbuster performance that has yet to be fully reflected in the stock price.
If you're not intrigued yet, consider that Glu has other growth initiatives that have the potential to be performance drivers. The company has signaled that it will be using its strong cash position to make big acquisition moves in the near future, and it's also experimenting with adding real-world e-commerce stores to some of its titles.
With the gaming industry already booming and the potential for emerging technologies, like augmented reality, to supercharge growth in the casual market and bolster digital commerce integration, I think Glu Mobile is a stock you won't want to miss out on.
The tech titan
Joe Tenebruso (Microsoft): You don't need to take huge risks to make a fortune with tech stocks. Often, it's the safer stocks that produce the greatest long-term gains for their shareholders. Microsoft (MSFT -1.16%) is a great example. The tech giant offers investors a relatively low-risk way to profit from several powerful tech trends.
Microsoft is a formidable force in the massive cloud computing market, which is set to grow to more than $360 billion by 2022, up from $243 billion in 2019, according to Statista. Its Azure cloud-infrastructure platform grew revenue by an impressive 48% in its most recent quarter. That helped drive Microsoft's total revenue up by 12%, to $37.2 billion. Its net income, meanwhile, surged 30% to $13.9 billion.
Microsoft also has a strong position within several other fast-growing areas of the tech world. Its popular Microsoft 365 suite of office software -- which contains cloud-based versions of Excel and Word -- is helping to power the work-from-home trend. Xbox gives Microsoft a leading position in the rapidly expanding global gaming market. And Microsoft's Surface line of mobile devices is enjoying booming demand during the coronavirus pandemic.
With so many ways to profit, Microsoft gives investors multiple ways to win. Buying shares now will position you to claim your share of this tech-leader's profits in 2021 and beyond.
Conditions look increasingly fab for this fab
Will Healy (Taiwan Semiconductor): Companies such as Advanced Micro Devices and Qualcomm are some of the most prominent chip companies in the industry. However, none of these companies could prosper without the foundries of Taiwan Semiconductor (TSMC). While these companies may design the chips, they're "fabless" -- which means they need a company like TSMC to handle the manufacturing.
This is important because of Intel's size. For all of Intel's challenges, its revenue still dwarfs that of AMD and other direct competitors. Hence, gaining Intel as a client may test the capacity limits for the fab.
Still, TSMC may partially address this issue with a presence in the U.S. The company recently won approval to build a $12 billion semiconductor factory in Phoenix.
This factory offers TSMC one other critical benefit. Taiwan faces an ongoing geopolitical threat from China that could cause concerns about chip production. Thus, holding some production capacity in the U.S. should help lessen these worries.
Moreover, even after rising by about 80% this year, TSMC's forward price-to-earnings ratio is around 28. This is cheap considering that earnings per share increased by 36% in the latest quarter.
Additionally, revenue guidance for Q4 points to that growth continuing. This should help make TSMC an essential chip stock now and into the next year.