It often pays to own stocks that are popular and widely followed, especially by professional investors on Wall Street. But occasionally, better returns can be made in corners of the stock market that attract less attention.
Certain sectors fall in and out of favor when economic trends shift, or in the face of external factors (the pandemic, for instance). Chasing these trends and catching the tail end of them isn't as fruitful as being there beforehand to build their potential into your portfolio for the long term.
Here are two tech stocks that are rarely in the spotlight but that could deliver dominant returns in the future when the trends they focus on catch fire.
Image source: Getty Images.
1. The case for Tenable
Investors might recall the June 2021 cyberattack on the Colonial Pipeline in the eastern U.S. It dominated media headlines when hackers held access to the pipeline's computer systems for ransom, eventually receiving a reported $5 million payment in Bitcoin to release their hold. It's the stuff of nightmares for executives across corporate America who fear their companies could be targeted one day, and that's why global spending on cybersecurity is expected to total $1.75 trillion by 2025.
This increased interest in cybersecurity is what makes Tenable Holdings (TENB 1.68%) a great addition to any investor's portfolio. Tenable is a leader in vulnerability management and threat detection, with its Nessus platform now serving 30,000 organizations. That makes it the most deployed cybersecurity tool in the industry. Nessus is customizable, so it can be tailored to the needs of any size business, but larger companies are flocking to Tenable the fastest right now.
In 2016, Tenable had 124 customers spending $100,000 or more annually, which is its highest reported category. That figure currently stands at 995 customers, representing a compound annual growth rate of 51%, outpacing the company's overall revenue growth.
|
Metric |
2016 |
2021 (Estimate) |
CAGR |
|---|---|---|---|
|
Revenue |
$124 million |
$536 million |
34% |
Data source: Tenable, Yahoo! Finance. CAGR = compound annual growth rate.
Nessus currently has the greatest coverage of any platform over the known list of common vulnerabilities and exposures, according to the U.S. government. That suggests it's likely to remain in favor among large organizations.
The company is estimated to generate $0.35 in earnings per share this year, which says something considering most of its competitors remain unprofitable. It's a great stock to buy in 2022 and hold for the long term.
Image source: Getty Images.
2. The case for Workiva
Data unification platform company Workiva (WK -0.23%) is a quintessential pandemic work-from-home stock. Fortunately for Workiva, the work-from-home trend appears to be sticking around even though the broader economy has largely reopened. Some companies have even implemented permanent remote work flexibility for their employees to help retain and attract talent.
When the pandemic spooked investors in March 2020, Workiva's stock traded at $30 per share. It then soared by 476% to $173 by November 2021 as the company's business model caught favor with investors. The stock price has since dipped by 32%, which might be a great entry point for a long-term bet.
When employees within large organizations work remotely, tracking their workflows across all of the digital applications used in general operations can be challenging. Workiva brings data together from mainstream apps and displays it in one place, making it easy for managers to draw upon critical information to draft reports or prepare regulatory filings. So if one team generates data in Microsoft Office, another in Salesforce's Tableau, and another in Alphabet's Google Cloud, Workiva can unify it all.
Like Tenable, Workiva's highest-spending customer base is growing the fastest. In the recent third quarter of 2021, it had 541 clients with an annual contract value of $150,000 or greater, representing 41% year-over-year growth. That compares to 15% growth for its total customer base comprising 4,146 companies. It suggests that larger organizations with the resources to manage a more remote workforce are proactively investing in the necessary technology.
Overall, analysts anticipate its growth in customers should translate to $531 million in revenue in 2022, growing by 21% compared to 2021 and crossing the half-billion-dollar threshold for the first time in company history.
If employment trends continue to move in favor of work-from-home options, Workiva will become more central to the daily operations of its clients. With 75% of the Fortune 500 companies already using the platform, Workiva's long-term future certainly looks bright.
