The tech sector stands out as one of the best starting points for investors seeking lifechanging returns. In addition to many companies in the space having highly scalable business models, technology also plays a decisive role in shaping nearly every other business sector.
We asked three Motley Fool contributors to profile their top tech pick for the new year. Read on to see why they think Glu Mobile (GLUU), salesforce.com (CRM -0.39%), and Qualcomm (QCOM -2.53%) are on track to be huge winners.
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Looking for huge gains? Start small
Keith Noonan (Glu Mobile): When it comes to naming top tech stocks for 2021, Glu Mobile admittedly might look like a bit of a strange pick. If you asked video game fans and industry watchers to name the most powerful and influential companies in the space, you probably wouldn't get many respondents offering up Glu Mobile.
Activision Blizzard, Tencent, and Take-Two Interactive are just a few of the many names in the industry that are substantially larger and more resource-rich than Glu. This is a small-cap company valued at roughly $1.6 billion, but there's also a lot to like about the stock at current prices.
For one, the valuation still looks quite reasonable in the context of strong performance and long-term growth tailwinds for the industry. The company's shares trade at about 17.5 times this year's expected earnings and just 2.5 times expected sales. Glu might not be able to match the titans of the industry with regards to development and marketing budgets, but it's got a solid collection of video game properties that are delivering reliable performance.
These franchises are putting up strong results thanks to ongoing content updates that are keeping players engaged, and management projects that its current lineup alone will be enough to drive bookings up between 8% and 10% next year. Glu is also set to release four new intellectual properties in 2021, which signals that the business could be heading into a dramatic new growth phase.
In my book, Glu Mobile stock currently epitomizes the concept of "growth at a reasonable price." Its core franchises are putting up solid performance, major new releases are on the way, and the company will likely make acquisition moves in the near future to accelerate its growth. It's also experimenting with integrating real-world e-commerce stores into its titles. The stock still looks cheaply valued, and success for even a small number of its growth bets could send this small cap soaring.
The cloud software titan
Joe Tenebruso (Salesforce): Successful tech investing often comes down to identifying powerful long-term trends. Cloud computing, big data, and remote work are three such megatrends -- and at their intersection lies Salesforce.
Salesforce is the global leader in cloud-based customer relationship software. It dominates the industry, with a market share that's larger than its four closest competitors combined.
Acquisitions have helped Salesforce enter new markets. Thanks in part to its purchases of MuleSoft and Tableau, Salesforce is now a leader in data integration and visualization. By helping its customers better aggregate, analyze, and understand their data, the cloud leader has ingrained itself in its customers' operations.
Today, Salesforce has its sights set on the fast-growing enterprise communications market. In December, it reached a deal to acquire Slack Technologies (WORK). Salesforce intends to combine Slack's workplace messaging platform with its cloud software to "transform the way everyone works in the all-digital, work-from-anywhere world," according to CEO Marc Benioff.
Although acquisitions can be risky, Benioff and his team have a proven track of success. They've managed to integrate past acquisitions and create a whole that's far greater than the sum of its parts. Salesforce's strong financial results are a testament to its operational excellence. The cloud titan's revenue climbed 20% year over year to $5.4 billion in the third quarter, while its operating cash flow rose 14% to $339 million.
With the cloud computing, big data, and remote work trends still in their early stages, investors can expect much more growth ahead for Salesforce in 2021 and beyond.
A strong connection to 5G profits
Will Healy (Qualcomm): Thanks to 5G, investors can connect with this chip stock on a new level. Since Apple now sells 5G-compatible devices, the upgrade cycle has begun in earnest. With 5G offering speeds exponentially higher than that of 4G, most users will likely upgrade at some point.
Qualcomm benefits because it is the only maker of a critical 5G chipset. This should remain true for at least the foreseeable future. Last year, Qualcomm persuaded a court to overturn a ruling that Qualcomm was a monopoly.
Apple also dropped its lawsuits against Qualcomm in 2019. However, it did buy Intel's smartphone chipset business, presumably to someday offer a competing product.
One can understand why Apple wants a piece of this market. This business is so large that Grand View Research forecasts a compound annual growth rate (CAGR) of 63% through 2027.
These increases have already begun to materialize. In its most recent quarter, adjusted revenue rose by 35% from the same quarter last year. Adjusted earnings per share surged by 86% over the same period.
Moreover, despite recent growth in Qualcomm stock, investors may not yet appreciate the value proposition. Even with the move higher, Qualcomm's forward P/E ratio stands at about 21. This is extremely cheap, especially considering the potential growth and Qualcomm's market position.
Finally, as CEO Steven Mollenkopf retires, Qualcomm insider Cristiano Amon will take over the position. Amon spearheaded Qualcomm's 5G strategy. As he takes the helm, Amon could bring an added 5G focus that should help take Qualcomm higher in 2021 and beyond.
