2021 was a messy year for tech stocks. Many tech companies that benefited from stay-at-home tailwinds during the pandemic lost their luster as they faced tougher post-lockdown comparisons. Rising inflation also sparked a rotation from speculative growth stocks toward blue-chip tech stocks.
Those trends could continue in 2022 and generate unpredictable headwinds for tech investors. However, Alphabet (GOOG -0.09%) (GOOGL -0.15%), PayPal Holdings (PYPL 0.27%), and Impinj (PI 2.43%) could easily ride out those near-term challenges and generate some market-beating returns this year.
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1. Alphabet
Shares of Alphabet, the parent company of Google, rallied 65% in 2021 but still look reasonably valued at 26 times forward earnings.
Google's advertising business, which generates the lion's share of its revenue, experienced a slowdown in the first half of 2020 as the pandemic's initial effect dented its ad sales. However, the growth of its cloud business offset that decline until its ad sales rebounded in the second half of the year.
In 2021, Google's advertising and cloud businesses both fired on all cylinders in a post-lockdown market. Analysts expect its revenue and earnings to rise 39% and 85%, respectively, for the full year even as it faces antitrust probes and fines across Europe, the U.S., and other markets.
Alphabet's stock continues to rally for three simple reasons: Its advertising and cloud businesses are both well-insulated from inflation, its sprawling ecosystem locks in billions of users worldwide, and it's a promising long-term play on newer technologies like artificial intelligence (AI) and driverless cars.
Simply put, investors who are looking for an evergreen tech stock that provides an attractive blend of value and growth should buy Alphabet.
2. PayPal
PayPal's stock declined 19% in 2021 as investors fretted over the digital payment company's decelerating growth.
It expects its revenue and adjusted earnings to grow 18% and 19%, respectively, in fiscal 2021 -- but that would represent a slowdown from its 21% revenue growth and 31% adjusted earnings growth in fiscal 2020.
That deceleration raised some concerns about the ambitious growth targets PayPal set forth last February. At the time, PayPal claimed it could more than double its annual revenue from $21.45 billion in 2020 to over $50 billion in 2025, and increase its number of active accounts to 750 million -- compared to its 416 million active accounts in its latest quarter.
Moreover, PayPal's rumored interest in buying Pinterest for about $45 billion last October suggested it was grasping at straws to hit those targets.
But at 35 times forward earnings, PayPal's stock now looks a lot cheaper than more speculative fintech stocks like Block, Adyen, and Affirm. New strategies -- including its "super app" for various financial services, Venmo's partnership with Amazon, and its new buy now, pay later (BNPL) options -- could all stabilize PayPal's growth and bring in new users this year.
If you believe digital payments will render cash and card-based payments obsolete in the future, then it's still a great time to buy PayPal's stock.
3. Impinj
Impinj is one of the world's top producers of radio-frequency identification (RFID) chips, readers, and software. Its RFID chips, which connect over 50 billion items with over 3 million readers worldwide, are widely used to track supply chains, product sales, and consumer trends.
Impinj's RFID business was flourishing before the pandemic hit. Retailers routinely tagged their products with its chips to track customer preferences, make AI-driven decisions, and compete more effectively against superstores and e-commerce giants. Companies also frequently tagged their products to optimize their supply chains and develop new Internet of Things (IoT) services.
Impinj's revenue declined 9% in fiscal 2020 as the pandemic disrupted the retail and manufacturing sectors. However, analysts expect its revenue to surge 33% in fiscal 2021 as those headwinds wane.
Looking ahead, the ongoing supply chain challenges across the world could generate long-term tailwinds for Impinj's business as more companies recognize the value of tagging and scanning their products. Impinj isn't profitable yet, but its gross margins are rising and its losses are narrowing.
Impinj's stock more than doubled in 2021, but it still doesn't look too expensive at 10 times next year's sales. Its low enterprise value of $2.1 billion could also make it a tempting takeover target for bigger tech companies.
