July is upon us, and in keeping with tradition, we asked a few Motley Fool contributors to consider three tech stocks that are worth a strong look this month. Does that mean we expect each to outperform its peers in July? No, not necessarily.
Facebook (NASDAQ:FB), Twitter (NYSE:TWTR), and Microsoft (NASDAQ:MSFT) have made our list of stocks to consider this month because of each company's long-term prospects, though after the recent sell-off, some stock price appreciation sooner rather than later is also a strong possibility. Here's what makes each of these tech stocks worth putting on your watch list:
Tim Brugger: Last quarter was yet another home run almost across the board for the king of social media. Monthly average users were up, and now stand at a mind-boggling 1.44 billion. Even more impressive is Facebook's daily average users -- a great measure of user engagement -- jumped 17% to 936 million. Total revenues increased over 40% in Q1, and 73% of Facebook's $3.32 billion in ad sales were of the mobile variety. It's no wonder Facebook's stock price is bumping up against all-time highs.
Past performance is great, but the best part of the Facebook investment story is what's coming.
CEO Mark Zuckerberg has taken the advertising wraps off Instagram, and is ready to fully monetize the popular photo-sharing site. Instagram boasts over 300 million, fully engaged MAUs. And with Facebook video ads fully operational, the high-fee spots are a natural for Instagram's picture-sharing user base. And there's more.
Zuckerberg raised a few eyebrows when he dropped $2 billion for virtual reality headset manufacturer Oculus. But as Facebook prepares to introduce the Oculus Rift VR gear to the masses early next year, all the angst will be quickly forgotten. Some estimates suggest the VR market will become a $150 billion powerhouse in just five years, and Facebook is poised to lead the way.
Now toss in nearly 1 billion MAUs active on Facebook's WhatsApp messaging property -- which has yet to be monetized -- let alone the over 600 million monthly users on the now-independent Messenger site, and the future is rife with possibilities. Don't let Facebook's stellar stock price run scare you away in July; it remains a solid growth opportunity.
Bob Ciura: Technology behemoth Microsoft is a great stock to buy in July because it offers investors a great blend of growth, value, and income. Thanks to its success across both its hardware and software businesses, Microsoft is putting up steady growth. Its devices and consumer revenue grew 11% in constant currency last quarter, year over year, while the commercial business posted 7% constant-currency revenue growth in the same period.
Microsoft's cloud strategy is driving its growth. Commercial cloud revenue more than doubled last quarter, driven by Office 365, Azure, and Dynamics CRM, and is now a $6.3 billion business on an annualized basis. In addition, server revenue grew 12%. Separately, tablet revenue soared 44% due to strong sales of the Surface Pro 3,
As far as its dividend goes, Microsoft offers a strong 2.8% yield. Plus, it's an aggressive dividend growth stock. It has increased its dividend by 19% compounded annually over the past five years. There is plenty of room for future dividend growth to continue, since Microsoft only distributed 40% of its free cash flow in dividends over the first three quarters of the fiscal year.
Microsoft also has a fortress of a balance sheet. At the end of last quarter, it held $95 billion in cash and marketable investments on its balance sheet, with just $27 billion in long-term debt. In fact, Microsoft is one of only three U.S.-based companies to hold a triple-A credit rating from Standard & Poor's. To conclude, Microsoft is a modestly priced stock, at 18 times earnings, is a growing company, and pays a solid dividend. Value and income investors should see reasons to like Microsoft right now.
Andres Cardenal: Twitter's stock is down by more than 35% from its highs of the last year, mostly because Wall Street is disappointed with the company's growth rates. This led to the resignation of CEO Dick Costolo, who is being temporarily replaced by co-founder and Chairman Jack Dorsey. This means there is considerable uncertainty surrounding Twitter, but risk can many times create big opportunities for investors.
Twitter has 302 million monthly active users as of the first quarter in 2015, a year-over-year increase of 18%. The platform is already quite big and growing at a nice rate. However, investors are expecting far more from Twitter. As a comparison, Facebook has reached a much bigger user base of 1.44 billion monthly active accounts, and it still grew 13% in the last quarter.
The company is working on accelerating growth by making its language easier to understand for new users, offering more video content, and improving monetization, among other growth venues. Over time, it makes sense to assume that Twitter should be able to deliver solid performance as one of the main players in social media and online advertising.
The platform offers many valuable traits for advertisers. Twitter is especially strong in key areas such as real-time news coverage, and traffic tends to spike during massively popular events such as the Academy Awards and the Super Bowl. This should provide considerable opportunity for it to profit from a growing online advertising industry for years to come.
Chances are that Twitter will find ways to sustain strong user growth and make more money per user in the future. If this happens, opportunistic investors buying at current prices could be rewarded with considerable gains.
Andrés Cardenal has no position in any stocks mentioned. Bob Ciura has no position in any stocks mentioned. Tim Brugger has no position in any stocks mentioned. The Motley Fool recommends Facebook and Twitter. The Motley Fool owns shares of Facebook and Twitter. 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.