Source: Apple
Technology stocks have made many investors rich, and finding innovative companies in the sector can be a great pathway to wealth. But with all the changing trends in technology, it can be hard to identify the stocks with the most potential. Looking at what billionaire investors are doing with their own money, though, can serve as a springboard for your research.
With that in mind, we turned to three Motley Fool contributors for their views on billionaire-approved tech stocks. Check them out and see whether are worthy of your investment -- or share your own choice in the comments below.
Jamal Carnette (Apple): Have you ever agreed with someone's thesis while utterly rejecting the reasons they came to that same conclusion? If so, you know how I feel about Carl Icahn and his investment in Apple (AAPL -1.22%). I absolutely agree the stock is undervalued, as the market continues to discount its growth potential, but his open letter to Apple CEO Tim Cook was full of favorable assumptions and unfounded rumors of future products. And while I think his value figure of $240 per share -- roughly twice the going stock price -- is aggressive, Apple does not have to engage in Icahn's recommended stock repurchase schemes in order to signal its value to investors. Apple simply needs to keep making top-notch products.
Unlike Icahn's proposed catalysts of cars and TV sets, the latter of which Apple shelved last year, I think the company will remain an iPhone-driven business for the time being. While that is not as exciting as a new product, it is still good news for Apple shareholders. The high-margin iPhone continues to reward investors, and sales growth has been especially strong in China. Over the last two quarters, the company has registered 70% year-over-year growth in that region. Given its population of 1.2 billion and a growing middle class, I feel the opportunity in China is just starting.
Tim Green (IBM): Warren Buffett almost never buys technology stocks. The billionaire CEO of Berkshire Hathaway only invests in companies that are predictable in the long run -- if Buffett cannot predict what a company will look like in 15 or 20 years, he is unlikely to be interested in the stock. Technology companies are subject to constant, and often disruptive, change. Predicting the state of the industry in 20 years, let alone which companies will be prospering, is no easy task.
So when Buffett does buy a technology stock, investors should take note. In 2011, Berkshire Hathaway bought over $10 billion worth of IBM (IBM 0.06%). Big Blue has struggled over the past few years, ultimately abandoning its 2015 earnings target of $20 per share, and Buffett has responded by continually adding to his position.
What is so special about IBM? The company is entirely enterprise-focused, and its success has ultimately stemmed from listening to customers and providing integrated solutions. IBM is so entrenched in a wide variety of industries, from banking to retail, that dislodging it would be nearly impossible.
The growth of cloud computing did throw a curveball its way, but IBM is investing aggressively in areas where it believes high returns on investment are most likely. IBM invested $1 billion in its Watson cognitive computing system last year and more recently committed $300 million and 3,500 researchers to Spark, an open-source Big Data technology. As information technology changes, IBM is changing with it, as it has done multiple times in the past. And with the stock trading at less than 11 times earnings, it is no wonder Buffett is adding to his stake.
Dan Caplinger (Google): Among tech stocks, Google (GOOG -1.10%) (GOOGL -1.23%) is hardly a gutsy play, but it does have a number of billionaire investors backing its future prospects. For one thing, founders Larry Page and Sergey Brin each hold a 6% to 7% interest in Google, worth a couple dozen billion dollars each and dwarfing the holdings even of major institutional investors such as Vanguard and Fidelity. A number of hedge funds and other active investors have also retained substantial positions in the company.
Most recently, buying activity from some well-known billionaires points to the value proposition Google offers. Viking Global Investors, which is led by investor Andreas Halvorsen, more than doubled its holdings in Google Class A shares in the first quarter of 2015 to 1.64 million, while also adding a position in the Class C shares. All told, Viking has about $1.4 billion in Google stock. Meanwhile, billionaire Steven Cohen's Point72 Asset Management also added to its position, albeit with a more modest position of about 180,000 shares representing less than a $100 million investment.
Even as many rival tech stocks have climbed, Google stock has lingered in a limited range for nearly two years now, as concerns about future growth have held back the share price. Yet many shareholders believe the company can reaffirm its leadership position as it targets the mobile market and explores new innovations. Google trades at a relative bargain of just 19 times 2015 earnings, and any return to growth could yield big share price gains.
