Forget oil stocks. Put China on the back burner. And for heaven’s sake, health care stocks are so 2014.
This year is all about technology stocks. Just days after Google took investors on a thrilling 20 percent upswing by trouncing analysts’ expectations in its quarterly earnings report, the tech industry took a collective dip on Tuesday when disappointing earnings reports from Yahoo, Microsoft and Apple pushed the tech-heavy Nasdaq composite lower, and IBM’s poor showing helped drop the Dow Jones industrial average below 18,000.
For investors in tech stocks, it can be a stomach-churning roller coaster. Case in point: The Technology Select Sector SPDR Fund (ticker: XLK), an exchange-traded fund that holds 72 technology stocks, has fluctuated wildly year to date. And while it has managed to earn nearly a 5 percent return so far this year, decisively outperforming the Standard & Poor’s 500 index, it is trading above its 50-day and 200-day moving averages, indicating that a short-term reversal may be at hand.
Looking at the individual giants in the space, Google is pushing ever higher while Apple stock appears to be at a crossroads. Apple posted quarterly profits this week that managed to beat analyst expectations, but disappointed analysts with its revenue outlook in the current quarter, forcing Apple down nearly 7 percent in after-hours trading, and another 5 percent as the market opened Wednesday.
So what should long-term investors do now? Given a choice between buying Google in hopes it moves higher, or grabbing Apple stock on the dip, financial advisors instead say investors should consider doing both — and while they’re at it, take a close look at Yahoo, IBM and Microsoft stock.
All these tech stocks remain strong choices for long-term investors in 2015 and beyond, advisors say.
Apple (AAPL). Despite complaints about the Apple Watch (cost, awkward navigation, limited apps), Apple’s iPhone sales remained strong, matching analysts’ estimates at 47.5 million units sold in the quarter. The company also came close to matching sales estimates for Macs and iPads.
Charles Sizemore, founder of Sizemore Capital Management, a fee-based registered investment advisory firm based in Dallas, says Apple’s newer products are a distraction from its core business — but that business remains a strong one. “I don’t see Apple Music, Apple Pay or even the Apple Watch having a huge impact on revenues over the next 12 months. But at current prices, they don’t have to. Apple is cheap enough at current prices to be attractive as purely a maker of iPhones,” he says.
Even after this week’s collapse, Apple stock is up more than 25 percent in the last year.
Google (GOOGL). You would have to forgive owners of Google stock if they’re walking around with little dazed grins. GOOGL is up a whopping 32 percent year to date, with much of that coming last week when Google stock soared 20 percent by crushing earnings estimates. The stock recorded earnings per share of $6.99, beating Wall Street estimates of $6.70.
Google also has the “cool” factor working for it, including its driverless cars that have been spotted cruising around California, as well as its immensely popular (and profitable) YouTube business.
“What makes Google a solid investment is the value of their hidden businesses that have not been monetized. Most of their revenue comes from their core search product, yet there is tremendous potential from each of their ancillary brands,” says Daniel Beckerman, president of Beckerman Institutional, based in Oakhurst, New Jersey, and a portfolio manager on Covestor.
Andrew Chanin, CEO of PureFunds in New York, says Google is riding its strengths of owning data, its programmatic advertising and its ability to hire top-notch people.
“Not only is Google a leader today, but it is also determined to be a leader in the future. Google has built groundbreaking technology and is always seeking new ways to use this technology to create more breakthroughs,” Chanin says.
Yahoo (YHOO). Shares of Yahoo stock were down 3 percent after the company reported quarterly earnings that beat analysts’ expectations for revenue, but narrowly missed what Wall Street had been expecting for earnings per share (16 cents earned versus 18 cents per share expected by analysts).
Yahoo has been struggling this year, down by more than 20 percent year to date, as it prepares to spin off its remaining stake in Chinese tech company Alibaba (BABA) into a newly formed entity to be called Aabaco.
“CEO Marissa Mayer’s turnaround is still turning, as improvements in hot areas like mobile and video weren’t big enough or grew fast enough to overcome weaknesses elsewhere. But they are tantalizingly close,” says Barry Randall, chief investment officer at Crabtree Asset Management in Saint Paul, Minnesota.
Microsoft (MSFT). Microsoft’s fiscal fourth-quarter earnings were hurt by weak Windows Phone sales, which decreased by more than $550 million for the quarter. Microsoft also took a write down of $7.6 billion for its earlier acquisition of Nokia. That led to a loss of more than $2 billion for the quarter, or 40 cents a share. Wall Street had been expecting earnings of 20 cents per share, so the loss came as an unpleasant surprise.
Despite the bad news this week, Microsoft is still a good stock to hold for the long term, says Kevin Kelly, chief investment officer of Recon Capital in Greenwich, Connecticut. He noted that Office 365 consumer subscribers increased to more than 15 million, and Office 365, Azure and Dynamics CRM Online are helping to push Microsoft to an annual revenue run rate of more than $8 billion.
“If there was a startup out of Silicon Valley with an annualized revenue run rate of over $8 billion, it would be raising money hand over fist and at a ridiculous valuation,” Kelly says. “Microsoft is affording investors an opportunity with that exposure at a reasonable valuation and dividend yield over the long-term.”
International Business Machines (IBM). The Armonk, New York-based company continued its weak 2015 by losing nearly 6 percent on Tuesday after reporting quarterly sales of $20.8 billion, which was below the $20.95 billion expected by Wall Street. It marked the 13th consecutive quarter of revenue declines for IBM.
But IBM stock is still a long-term winner for many financial advisors. “We believe IBM is great company to hold for long term. With a 6 percent correction [Tuesday], it is even more appealing. It is a balance sheet-rich firm trading just 10 times trailing earnings and 13 times free cash flow,” says Sreeni Mika, a financial advisor at Lakeland Wealth Management in Lakeland, Tennessee.
Kim Forrest, vice president and senior analyst at Fort Pitt Capital Group in Pittsburgh, says IBM is a good buy for investors who have a minimum investing horizon of three to five years.
“We are very excited about the analytics products the company has been promoting, and the cloud business could be really good for IBM. Most large businesses have not moved their business into the cloud, and we think that IBM may have a good shot at helping their existing clients migrate some of their business into the cloud,” she says.
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Google Stock or Apple Stock? Why Investors Should Choose Both originally appeared on usnews.com