The world is changing quickly, with consumers shopping on their phones and saving their photos in the cloud. Companies that cater to the e-commerce are getting a lot of attention from growth-oriented investors today.
Especially in the current environment, business investment continues in the technology arena, which is a key factor in this sector’s long-term growth prospects. “Companies will invest in technology first, before labor, to maintain competitiveness. Big data, mobile payments and cybersecurity are expanding trends,” says Anthony Valeri, investment strategist for LPL Financial in San Diego. “We believe the economy will avoid recession and continue to expand. As a result, we’re biased towards cyclical sectors such as technology.”
Bullish analysts continue to see long-term opportunities in technology for investors. “This is still where the long-term disruption happens. It happens most pervasively on the enterprise side, where big budgets chase bigger operating efficiencies,” says Hilary Kramer, editor of the GameChangers stock newsletter. “People often think of technology as it relates to their own lives: consumer media like Facebook (ticker: FB) and consumer electronics like Apple (AAPL.) It’s great to develop a hit product, but the real innovation almost always starts in enterprise and works its way down toward the end user.
“Today’s mainstream tech giants are also always hunting the next big thing to bolt onto their existing platforms,” Kramer says. “The secret is finding the technologies that attract a nucleus of early commercial adoption. That’s where a lot of the really big tech wins happen.”
Inside the technology sector, there are three key areas for investors to consider: cybersecurity, big data and mobile payments.
Cybersecurity is growing. Cyberattacks, damages and sophistication are on the rise, and the cost of being attacked has increased. These days, who isn’t worried about passwords, protecting data online and getting hacked? From big businesses down to individuals, cybersecurity continues to take on greater importance.
“Increased spending on cybersecurity has occurred every year over the last decade,” says Andrew Chanin, CEO of New York-based PureFunds. His firm manages the PureFunds ISE Cyber Security exchange-traded fund (HACK), which holds 34 stocks with an emphasis on cybersecurity and protecting online data. Top holdings include Cisco Systems (CSCO), Symantec Corp. (SYMC) and Check Point Software Technologies (CHKP).
It turns out that this type of investment could be somewhat recessionproof. “Regardless of where we are in economic or business cycle, companies and governments must spend on cybersecurity,” Chanin says.
Kramer also recommends FireEye (FEYE), a long-term favorite in the cybersecurity arena, although its stock has fallen 65 percent in the last year. “While the frenzy that drove this stock to $97 [in 2014] was overdone, the business is ramping up at a healthy rate — sales were up 45 percent last year, and it only takes a few headline hacks to drive adoption. The White House opening up a $19 billion budget item for cybersecurity is a big step in the right direction. As far as the stock goes, the negativity clearly got more than a little ahead of itself, and now it’s time for more realistic investors to come in at a fair price.”
Big data is big business. Data creation from an individual to business level is expected to only increase in the years ahead. Companies that track, store, analyze and provide database solutions are poised to benefit from the growing big data trend. The benefits from big data analysis can affect companies across all sectors and industries.
“Big data companies are those that have massive caches of data with the potential to monetize data or analytics that help businesses extract value from or make better decisions with their data. Companies are just starting to learn how to extract value from their data, and the amount of data in existence continues to grow rapidly,” Chanin says. PureFunds offers a Big Data ETF (BDAT) that includes 32 stocks, including top holdings NICE Systems (NICE), Fair Isaac Corp. (FICO) and IBM Corp. (IBM)
Kramer also likes Marketo (MKTO), a big data company that packages its audience tracking tools along with online marketing systems, effectively letting advertisers know which messages are working and what kind of potential customer is engaged. MKTO stock is down 47 percent in the last year.
“Odds are good that you received at least one email newsletter created on the MKTO platform today. As with FEYE, the froth has been driven out of this stock price, leaving an opening for real investors to capture 25 to 30 percent sales growth and significant progress toward profitability at a fair price. MKTO may not break even before 2018, but the quarterly numbers are moving in the right direction. In the meantime, customer retention is extremely high, so the revenue is of the recurring variety — low cost, low maintenance,” Kramer says.
Everyone is going mobile. Technology is changing consumer behavior. When’s the last time you checked a price or shopped on your smartphone? “As consumers shift away from cash transactions and towards mobile payment solutions, new data is retrieved about consumers and their habits, allowing retailers to better target new clients and better serve existing ones. Mobile payment users may transact faster, easier and at a lower fee than traditional payment-method users,” Chanin says.
Kramer says that mobile payments could be the next consumer-level breakthrough. “The important thing to remember is that it’s always a moving target. The business intelligence of a generation ago evolved into today’s big data applications,” she says.
These industries may be in their earlier growth stages. “Investing in an ETF that focuses on the broader theme as opposed to investing in an individual company may help reduce volatility and company risk,” Chanin says. The PureFunds ISE Mobile Payments ETF (IPAY) includes 34 stocks, including top holdings Visa (V), PayPal (PYPL), Mastercard (MA) and Fiserv (FISV).
Timing is everything. The latest swing down in the stock market could offer bargain-hunting investors an opportunity to snap up stocks at a lower price than just a few months ago.
“It’s probably a better time now to accumulate these two stocks, FEYE and MKTO, than ever before. While the absolute bottom may not be in place yet, there’s always the risk that one of those giants will simply buy the company out at these levels,” Kramer says. “If that happens, you miss the trade altogether.”
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Tech Investing: 3 Areas for Growth-Oriented Investors originally appeared on usnews.com
