These are the top tech stocks to buy for 2021.
The year 2020 was one of the best years in recent memory for tech stocks. Through Dec. 21, the information technology sector of the S&P 500 was up about 40% in the calendar year. The S&P 500 itself was up 14.8% over the same period. Investors can’t expect technology names to always trounce the market like that, but the rapid digitization of shopping, working and entertainment that the pandemic kicked into high gear will continue to reap rewards for many tech names in 2021. Here are 10 of the best tech stocks to buy for 2021.
Apple (ticker: AAPL)
Apple, the largest publicly traded company in the world, is worth about $2.2 trillion. Not including state-owned businesses like Saudi Aramco, it’s also the most profitable, raking in $57.41 billion in profit in the last 12 months. A price-earnings ratio around 40 is a little high for such an already massive company, but investors are paying up in part for the financial security that comes with that size. Although AAPL is slowly diversifying away from its reliance on the iPhone, the hit smartphone still remains Apple’s major source of revenue, and recent reports from Nikkei Asia claim Apple is planning to increase its iPhone production by almost 30% in the first half of 2021 alone. Excluding companies running index funds, Berkshire Hathaway (BRK.B, BRK.A) is Apple’s single-largest shareholder, owning more than 5% of total outstanding shares.
Named one of U.S. News & World Report’s 10 best stocks to buy for 2021, this home electronics company earned an automatic spot among the list of the best tech stocks to buy for the coming year. Its sleek, easy-to-use speakers can be voice-controlled and wirelessly connected across the house, and the Sonos app is compatible with the major music-streaming services like Spotify (SPOT) and Apple Music. Sonos is the smallest company on this list with a valuation around $2.7 billion, so some investors may be hesitant to bet on SONO stock given the competition in the connected home market, such as Apple, Alphabet’s (GOOG, GOOGL) Google and Amazon.com (AMZN), but Sonos has managed to thrive in the competitive environment since it was founded in 2002 — and could even be an acquisition target for these larger players in time. Analysts expect sales to grow roughly 10% in fiscal 2021.
Match Group (MTCH)
Match Group is the premier online dating company in the market — and as of December 2020, it’s essentially the sole option for investors looking to bet on the emergence of online matchmaking. Early reports indicate that may change, with Bumble reportedly going public in February 2021. Regardless of Bumble’s plans, the parent company of Tinder, Match, OkCupid, Hinge, Plenty of Fish and other services is all-in on an industry with little sign of declining anytime soon. At more than 70 times earnings, are there cheaper tech stocks to buy out there? Sure. But MTCH isn’t just a stock to buy and hold for 2021 — it’s a long-term bet on a core part of humanity in today’s digital age. Match shares may be more attractive on a pullback, but they’re long-term winners.
Another wager on the core parts of humanity, Adobe is arguably the most appropriate tech stock to buy in order to bet on the endurance of human creativity. Its Adobe Creative Cloud, which includes services like Acrobat Pro, Dreamweaver, Illustrator, InDesign, Photoshop and Premier, is a major revenue driver, contributing to 20% year over year growth in its dominant digital media segment last fiscal year. It’s very difficult to find software companies of Adobe’s size — it’s worth more than $240 billion — with the ability to grow by 10% to 20% annually. Due to scale advantages that come with being a cloud-based software-as-a-service company, ADBE should be able to grow earnings more quickly than revenue going forward. Adobe was also named as one of U.S. News’ 10 best stocks to buy for 2021.
Cisco Systems (CSCO)
One of the far less risky of the best tech stocks to buy for the coming year, Cisco is at its core a mature blue-chip communications equipment company bound not to make major waves in investor portfolios. That’s part of what makes it a top tech stock, particularly for more conservative investors. The company, which makes infrastructure like routers, data center products and switches powering much of today’s digital highway, pays a solid 3.2% dividend and uses just 57% of profits to do so. Unlike so many other tech stocks heading into 2021, CSCO shares also trade for a muted multiple of just 18 times earnings and 14 times forward earnings.
Alibaba Group (BABA)
Another of the best tech stocks to buy for 2021, the Chinese equivalent of Amazon with a robust e-commerce segment and flourishing cloud division, is Alibaba. Unlike Amazon, which trades for a forward P/E of more than 70, Alibaba trades for just more than 20 times forward earnings — and it’s growing more quickly than the U.S.-based e-retailer. In the last five years, BABA has grown sales by 46.2% annually compared with the 25.8% compound sales growth at Amazon over the same period. With the massive and growing customer base that is the Chinese middle class supporting its growth, BABA shares have runway to keep thriving in 2021 and beyond.
Spotify Technology (SPOT)
Music streaming platform Spotify has successfully turned digital music into a social experience, with friends able to easily curate and share playlists, as well as see what their connections are listening to in the moment. There’s just one thing to note about Spotify, which saw monthly active users (MAUs) grow 29% to 320 million last quarter: It’s not yet profitable. That’s expected to change in the coming years, especially as Spotify pushes into podcasts, which should have better margins than the music licensing business. The most popular podcast on earth right now, “The Joe Rogan Experience,” is coming exclusively to Spotify by the end of 2020 in a licensing deal worth more than $100 million.
Cloud storage and collaboration company Dropbox is, relative to many tech stocks, quite cheap. DBX plays for 24 times forward earnings; last quarter, its revenue rose 13.8% and non-GAAP earnings per share jumped 100% year over year. Paying users rose to 15.25 million from 14 million a year ago, while average revenue per paying user also ticked up to $128.03 from $123.15 a year ago. Dropbox, although operating in a competitive environment, has successfully stood up against the storage giants and consistently grown since its inception in 2007. Overall, the company has more than 600 million registered users across 180 countries.
Another member of the best tech stocks to buy that also made the wider list of best stocks to buy, social media giant Facebook has become virtually too important for investors to ignore. With an estimated 3.21 billion monthly active people across its family of apps, which includes Facebook, Messenger, Instagram and WhatsApp, a meaningful chunk of the internet-connected world uses the company’s services on at least a monthly basis. Regulation is the biggest concern going into 2021, but the fact of the matter is that if FB were forced to divest of Instagram and WhatsApp, as some regulators have proposed, spinning these companies off into their own stand-alone businesses could unlock even more value for FB shareholders.
Last among the best tech stocks to buy for the year is telecom giant AT&T. It doesn’t have the growth potential that most of the other names do, but it excels in something else: relative stability and its dividend yield, which currently sits at 7.2%. Trading at around nine times forward earnings, T stock is the kind of reliable, grounded name that a portfolio of tech stocks needs to help reduce volatility. AT&T’s ownership of the Warner Bros. studio along with its relatively new HBO Max streaming platform combine to give AT&T a compelling portfolio of 2021 movie releases that will exclusively be available on HBO Max at the time of their theatrical debuts. Several films, which include a “Matrix” sequel, “Dune” and a number of other high-profile releases, should help drive subscribers to the $14.99 per month HBO Max.
Ten best tech stocks to buy for 2021:
— Apple (AAPL)
— Sonos (SONO)
— Match Group (MTCH)
— Adobe (ADBE)
— Cisco Systems (CSCO)
— Alibaba Group (BABA)
— Spotify Technology (SPOT)
— Dropbox (DBX)
— Facebook (FB)
— AT&T (T)
More from U.S. News