Tech stocks are off to a weak start in 2021.
The Nasdaq-100 — an index that tracks the biggest tech stocks — has underperformed the broader S&P 500 by four percentage points year to date. Investors have rotated from tech to reopening stocks as the economy picks up steam. That makes sense.
Certain tech shares, such as video call leader Zoom Video Communications (ticker: ZM) will struggle to match last year’s incredible performance. There are understandable concerns about earnings growth slowdowns now that folks aren’t stuck using the internet to work and study from home.
That said, investors shouldn’t give up on the the tech sector simply because the lockdowns have ended. In fact, some tech companies may actually perform better as life increasingly returns to normal. Here are five of the best tech stocks to buy that still offer considerable value at today’s prices:
— Facebook (FB)
— Salesforce.com (CRM)
— Aspen Technology (AZPN)
— Cerner (CERN)
Alphabet shares reached new all-time highs last week following a blowout quarterly report where earnings per share surged 34%. So is GOOGL stock getting ahead of itself? Morningstar’s senior equity analyst Ali Mogharabi doesn’t think so. He lifted his price target to $2,925 from $2,605 previously on the massive earnings number.
Mogharabi sees strong billings at Google’s cloud services and YouTube continuing to bolster the company’s growth. Demand for core advertising services should also rise as retailers and restaurants look to remind consumers that they’re open for business once again. That offsets some risks such as potential tax hikes and ongoing antitrust investigations. Overall, GOOGL stock sells for just 28 times forward earnings, which looks good considering that it has grown earnings 22% per year over the past five years.
It’s no surprise that two Big Tech companies land among the best tech stocks to buy for May.
Like Alphabet, Facebook stock just hit new all-time highs. Yet, it actually still might be cheap. Mogharabi pegs fair value at $390, which is well above current levels. Ad spending has roared back to life in recent months. Meanwhile Facebook’s other bets, such as augmented and virtual reality, are taking off.
That said, there are some risks here — such as a corporate tax increase and a potential decline in usage for the legacy Facebook platform.
Overall, though, Facebook still generates massive cash flows. Investors are also giving CEO Mark Zuckerberg more credit for his smart capital allocation decisions. First-quarter earnings reaffirmed Facebook’s leading position in the online advertising arena, while key rivals such as Twitter ( TWTR) and Pinterest ( PINS) badly stumbled.
The economy is surging. That means companies are bulking up their marketing efforts. Enter Salesforce.com.
While it’s not the flashiest tech name out there, Salesforce is the definition of consistent. It knocks out 20% sales and earnings growth year after year. Dan Romanoff, equity research analyst at Morningstar, says Salesforce “represents one of best long-term growth stories in software.” It’s hard to disagree.
Saleforce’s software is mission-critical, hard to replace and continues to have an expanding addressable market. The company’s move into facilitating app development further strengthens its appeal. Salesforce is more than a glorified database now; it has quietly evolved into a whole marketing platform. Going forward, Romanoff sees shares being worth $265 — that’s 11% upside from today’s price, and good enough to reinforce the sense that CRM is one of the best tech stocks to buy now.
Aspen Technology (AZPN)
Aspen Technology is a leader in process automation software. Think of software for power plants, refineries and chemical plants to increase efficiency and reduce waste. This is particularly vital now, as companies seek to reduce their carbon emissions and meet environmental, social and governance, or ESG, targets.
Aspen missed first-quarter earnings, in large part due to the awful weather in Texas that caused many power and energy firms to delay spending decisions. Aspen’s shares slumped 13% following the weak results. Romanoff believes this was an overreaction, and sees shares being worth $145 — above current prices — and says recent issues are “transitory” rather than due to a weaker business outlook for Aspen.
Cerner is a leading health care information technology company. It has grabbed a quarter of the overall electronic health record market and generates 75% of its revenues from recurring contracts. This market should expand in coming years due to favorable demographic trends and a need for efficiency to control spiraling health care costs.
Cerner follows a winning formula, offering software and services for a vital industry with subscription billing. Wall Street loves this sort of business. The price is also right, with shares going for just 21 times forward earnings. That’s not bad at all, given that Cerner historically has grown earnings more than 10% annually.
Damien Conover, director of health care equity research and equity strategy for Morningstar, sees Cerner’s shares going for $86, implying meaningful upside from current levels.
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Update 05/03/21: This story was published at an earlier date and has been updated with new information.