Could there really be better tech stocks to buy than Apple? Our analysts think so.
When our great grandchildren learn about the most important companies of our time, there's no doubt that Apple (AAPL 0.51%) will be at the top of the list.
The company has redefined how we listen to music, take pictures, and connect to the Internet. It also doesn't hurt that over the past ten years, the company has returned 2,280% for shareholders.
You'd have a tough time finding many Fools who think Apple is a bad stock to own. But with the company creeping up on a $1 trillion valuation, the days of rocket-launching growth are probably long gone. For investors with new money, there are better tech stocks to buy available on the market.
Recently, we asked three contributors to share their opinions on the best tech stocks to buy today. Read below to find out why Facebook (META 0.14%), Twitter (TWTR), and Microsoft (MSFT 0.46%) are so appealing.
Brian Stoffel (Facebook): When I'm looking to make an investment, there's nothing more important to me than sustainable competitive advantages. Although I have been -- and plan to continue to be -- an Apple shareholder, I have always been worried that Apple's competitive advantages weren't that sustainable over the long haul.
What I mean by that is that the company's success hinges largely on being able to produce The Next Big Thing. For a little less than 10 years, that "Thing" has been the iPhone, which now dominates the company's many revenue streams. But to have continued dominance, it will need to continue out-innovating the competition.
That's why I like Facebook more for my money right now than Apple. Though it may be more expensive than Apple on a price-to-earnings basis, it has two huge advantages that Apple doesn't.
The first is that I believe its competitive advantage as the premier social networking site is largely sustainable. In fact, CEO Mark Zuckerberg is building out a social network that includes Facebook, Instagram, WhatsApp, and -- though I'm not 100% sure how it will fit in yet -- Oculus Rift. The network effect that draws people into these sites, and keeps them locked in, is very strong in my opinion.
Secondly, we are in the early stages of a massive shift in how advertising dollars are spent. Between now and 2018, the world's five largest economies are expected to grow their mobile advertising budgets by 265%. With Facebook's mountains of data on user interests, few sites can offer targeted ads to the right eyes as much as Facebook.
Matt Frankel (Twitter): Apple is one of the greatest American companies, and is the best at what it does. However, after years of market-crushing performance, I fear that Apple's upside potential is very limited at this point. There is simply not very much room for growth compared to many other tech stocks.
One stock I would suggest for growth-seeking tech investors is Twitter. Even though new member growth has slowed slightly, the company is doing a great job of increasing the monetization of its business.
Twitter's 288 million monthly active user count pales in comparison to Facebook's 1.4 billion, but that means there is tremendous room for growth ahead. In fact, the company predicts new user growth rates in the 16-18% range in the coming year. Plus, ad prices and supply are both on the rise. The combination of these factors is expected to produce year-over-year revenue growth of nearly 80%, according to the company.
As my colleague Andrés Cardinal pointed out recently, Twitter has a solid strategy to make sure growth stays strong into the future. This includes a simplified sign-up process, more focus on video content, and constructing a large ecosystem of apps and services, just to name a few.
Basically, if you want stability, dividends, and an established market leader, there is absolutely nothing wrong with Apple. On the other hand, if you'd rather get into a rapidly growing future leader, Twitter is an excellent alternative.
Tim Brugger (Microsoft): No doubt about it, Apple is flying high. With its share price up over 62% in the past 12 months, iFans everywhere are feeling giddy. But for tech investors in search of value, Apple's stellar performance of late has opened the door for better opportunities, and that's where Microsoft enters the picture.
Microsoft's tepid stock performance of late -- it's down over 12% over the past three months -- may cause some investors to shy away. However, that short-term approach doesn't take into account the fact that Microsoft is hitting on all cylinders where it counts -- primarily with CEO Satya Nadella's cloud-first, mobile-first objectives.
Last quarter's financial results say it all. For the sixth consecutive quarter, Microsoft's suite of cloud-related services generated triple-digit revenue growth compared to the prior year's fiscal Q2. At an annual run-rate of $5.5 billion, if Microsoft's not on the top of the cloud heap, it's certainly getting close. Toss in its line-up of low-end smartphones targeting high-growth, emerging markets and the expected growth in tablet market share over the next four years, and Nadella's mobile-first pillar of his two-pronged strategy is showing signs of life.
For Microsoft purists, the 13% decline in its Windows OEM Pro and non-Pro business units raised alarms, and is at least partly responsible for its tepid stock performance. But the Microsoft of today is a lot more than a PC-based OS provider. When investors begin focusing on what really counts, they'll see that Microsoft's cloud leadership and growing mobile efforts are paying off, and that's when its share price will finally reflect its strong performance.
