The tech industry is fertile ground for growth and innovation, so it can offer remarkably profitable opportunities for investors. While the tech sector is generally assumed to be more risky and dynamic than other areas of the economy, it all comes down to picking the right names in the industry in order to keep risk under control.
If you're looking for solid and safe investments in technology, names such as Apple (NASDAQ:AAPL), Google (NASDAQ:GOOG) (NASDAQ:GOOGL), and Microsoft (NASDAQ:MSFT) could be interesting candidates to consider.
With a market capitalization of nearly $725 billion, Apple is the biggest listed corporation in the planet, and size has many advantages when it comes to stability and ability to successfully go through all kinds of scenarios. Besides, Apple has an immaculate balance sheet with nearly $194 billion in cash and investments, and only $44 billion in financial debt. This means the company has a gargantuan net cash position of $150 billion.
The business is also generating tons of cash on a recurrent basis: Apple produced $52.8 billion in operating cash flow during the six-month period ended on March 28. After deducting $5.6 billion in capital expenditures, this leaves $47.2 billion in free cash flows during the period.
The company is increasingly rewarding investors with growing dividends and big share buybacks. Apple has recently announced an 11% dividend hike, and it also raised its share repurchase authorization to $140 billion from the $90 billion remaining from the previous program. From the inception of its capital return program in August 2012 through this March, Apple has returned more than $112 billion to shareholders via dividends and buybacks.
All of this money does not come out of thin air, of course. Apple's brand power and product differentiation are key strategic advantages, and the company is delivering impressive financial performance on the back of booming iPhone 6 and iPhone 6 Plus sales.
Apple reported a massive 55% increase in revenues from the iPhone segment during the last quarter, while total company-level revenues increased at a vigorous 27% year over year. Even if growth decelerates somewhat in the coming quarters, Apple will most probably continue delivering healthy increases in both sales and cash flows during the middle and long term.
Consumers all over the world are spending a growing share of their time and attention online. They are connected via multiple screens of different sizes, be it computers, tablets, smartphones, or smart TVs, among other possibilities. Advertising spending needs to go where consumers are, and this means that online advertising is a remarkably promising industry during the years ahead.
Google is second to none in the online-advertising business, made strong by its search service which brings consumers and businesses together. For example, when someone uses Google to search for Mexican food in a particular neighborhood, the owner of a Mexican restaurant in that area has strong reasons to pay up in order to be well positioned in that search result.
Google boasts a 66% share of the global search market, according to data from Netmarketshare. In addition, the company owns enormously valuable properties like its Android mobile operating system, along with widely popular services and applications such as Chrome, YouTube, and Google Maps, among several others. Owning these platforms has allowed Google to build its undeniable leadership position in online advertising.
Constant-currency revenues grew 17% during the last quarter, and the business generates big fat operating margins in the neighborhood of 25% of sales. Like Apple, Google has far more cash and liquid investments than debt on its balance sheet, so its financial soundness is unquestionable.
Microsoft may not be the edgiest or most popular name in the tech business right now, as its traditional Windows and Office businesses are being hurt by the mobile computing paradigm and weak PC sales on a global basis.
On the other hand, the company is making sound progress in crucial growth areas such as cloud computing. Microsoft's commercial cloud business, which includes areas such as Office 365, Azure, and Dynamics CRM, is at an annualized run rate of $6.3 billion as of the last quarter. Sales from this segment have increased in the triple digits during the last seven quarters in a row.
According to management, there are now more than 50 million Office 365 monthly active users, so Microsoft is proving its ability to adapt and thrive under changing industry dynamics.
Microsoft is sitting on $95.4 billion in cash, cash equivalents, and short-term investments on its balance sheet, and the company has $12 billion in long-term investments. Financial debt is in the area of $28.4 billion when including both short-term and long-term obligations, so Microsoft has a net cash position of nearly $79 billion.
The company has raised its dividends every year since making its first dividend payment in 2013, and the stock is paying a 3% dividend yield at current prices. This looks like quite a compelling return coming from such a solid tech powerhouse.
Andrés Cardenal owns shares of Apple, Google (A shares), and Google (C shares). The Motley Fool recommends Apple, Google (A shares), and Google (C shares). The Motley Fool owns shares of Apple, Google (A shares), and Google (C shares). Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.