Unless this is your first time visiting The Motley Fool, you've probably seen articles that discuss the importance of long-term investing. That's because a buy-and-hold strategy mitigates the impact of short-term market volatility, and it allows plenty of time for your investment thesis to play out.
But there's another important part of the equation: dollar-cost averaging. Generally speaking, it makes sense to build positions slowly, and to invest money on a regular basis. This helps further minimize the impact of short-term market volatility on your total returns.
With that in mind, we asked three Motley Fool contributors to pick their top tech stocks to buy in October. Keep reading to see why Apple (AAPL 1.37%), Facebook (META 3.01%), and PayPal Holdings (PYPL 1.26%) made the list.
The gold standard in consumer electronics
Trevor Jennewine (Apple): Apple has established itself as one of the world's premier brands. It's the second-largest smartphone manufacturer, with 15% market share as of the second quarter, up from 12% in the prior quarter. And it enjoys a leadership position in tablets and smart watches. But Apple is more than shiny hardware.
Last year, the company introduced its custom-built M1 chip, bringing longer battery life and better performance to its MacBooks and iPads. Since then, the company has debuted the M1 Pro and M1 Max, both of which offer even more computing power. Of course, Apple has designed its iPhone chips for a while, but its foray into notebook processors could be a growth driver for two reasons.
First, who doesn't want more computing power? Apple silicon creates a better experience for users, which could help the company sell more devices and expand its ecosystem. Second, these in-house chips actually reduce Apple's expenses by $75 per unit, according to J.P. Morgan analyst Samik Chatterjee. In turn, that should drive hardware gross margin upward over time (or allow for a lower selling price at the same gross margin).
Building on that idea, Apple has expanded its services offering in recent years, and the lineup now includes subscription products like Apple TV+, Apple News+, and Apple Fitness+, as well as other services like Apple Pay and the App Store. This business segment posted a gross margin of nearly 70% in the most recent quarter, much higher than its 36% gross margin on hardware products. Put another way, as services become a bigger part of its business, Apple should become more profitable.
Finally, shareholders recently received some welcome news. In April 2021, Apple introduced privacy changes to its iPhones, making it more difficult for advertisers to collect data and target users. The company touted the move as a way to protect consumers, but it has also boosted Apple's market share threefold in the last six months. More specifically, Apple's Search Ads business -- which offers sponsored slots above App Store search results -- is now responsible for 58% of iPhone app downloads, up from 17% last year.
Here's the bottom line: Despite its $2.5 trillion market cap, Apple is the gold standard in many sectors of the consumer electronics industry and the company still has growth levers to pull. With the holiday season on the horizon, this tech stock looks like a smart buy right now.
A chance to capitalize on the fear factor
Jeremy Bowman (Facebook): It's been a rough month for Facebook. The social media giant got hammered first by an outage that took Facebook, Instagram, and WhatsApp off the internet for several hours, and then by testimony from whistleblower Frances Haugen, who accused the company of acting in the interest of profits rather than people.
As a result, the stock is down more than 10% from its peak in September. Though Facebook may face some consequences from Haugen's testimony, potentially in the form of greater oversight and regulation, that's likely to apply to the broader social media industry as well, meaning the company won't lose ground compared to its competitors. Additionally, Facebook is heading into its third-quarter earnings report, and the company looks primed to deliver another round of strong results. It's lapping the Stop Hate for Profit boycott last July, which should give its growth rate a boost, and its ad business is benefiting from the economic reopening as restaurants and physical retailers are anxious to jump-start their businesses.
Facebook has routinely crushed analyst estimates in recent quarters, and it looks ready to do the same this time around as the analyst consensus calls for earnings per share to increase just 17% to $3.17. Management had warned that Apple's new ad tracking policies were impacting the performance of its ads, but given the other tailwinds blowing in the company's favor, that seems like a lowball estimate.
Meanwhile, the stock looks cheap at a price-to-earnings ratio below 25 considering its broad growth in digital advertising, Facebook's moves into e-commerce, and the potential of the metaverse as the company is investing aggressively in virtual reality and augmented reality. After the recent sell-off, now seems like a good time to take advantage and buy this top tech stock.
A good Pal in the fintech sphere
Eric Volkman (PayPal Holdings): In recent days, PayPal Holdings hasn't been a popular stock. Investors are concerned that its apparent pursuit of Pinterest is going to result in a monster deal -- supposedly around $45 billion -- that will be hard for the next-generation fintech company to swallow.
The resulting slump in PayPal's share price provides a nice opportunity to buy the stock at a discount, particularly going into the holiday season (which is sure to generate significant numbers of transactions). The company is already doing incredibly well in its core business, and it's evolving into a broader financial services provider with numerous revenue streams.
PayPal is already a monster presence in digital payments. The platform it operates powers a great many of the commercial transactions we make online. It's also a muscular presence in the field of peer-to-peer payments, thanks to its immensely popular Venmo mobile app.
A great many payments flow through PayPal's system, and the waters are rising. Total payment volume rose 40% year over year in the most quarter, reaching $311 billion. Moreover, new users are beating a path to the company; PayPal added more than 11 million net new active accounts during the last quarter, pushing the total above 400 million for the first time in its history.
Those dynamics helped propel net revenue 17% higher, and pushed net income up by 8%. And the company is quite profitable, with a net profit margin of 19% during the most recent quarter.
Moreover, PayPal is working to widen its financial services ecosystem. For example, it's expanding its buy now, pay later service by rolling it out in international markets like Australia and Germany. And another high-demand service, cryptocurrency trading, was launched on Venmo not long ago.
The potential Pinterest deal is making investors shy. That's not justified. Even if that admittedly pricey acquisition goes through, Pinterest's merchandise and PayPal's payment system complement each other nicely. And with the social media aspects of Pinterest, PayPal gains an asset in that universe that can boost merchandise sales and payment volume.