These are the top tech stocks to buy for 2021.
Tech stocks have been on a tear in 2021, continuing what was a red-hot 2020 for the sector, which thrived with the sudden necessity of widespread remote work brought on by the pandemic and social distancing. Even with 2020’s stock market crash, the tech-heavy Nasdaq surged 43.6% last year. Many of the trends that had already been underway were given sudden boosts, and 2021 is only bringing more growth for most of the major players in tech. Through July 15, U.S. News’ 10 best tech stocks to buy have returned 14.2% as a portfolio, compared to 12.8% for the Nasdaq. Here’s a look at each pick and how they’re performing.
Apple (ticker: AAPL)
Apple is the largest publicly traded company in the world at a valuation of roughly $2.4 trillion, and it continues to get bigger. The stock recently hit all-time highs on news that Apple was seeking to boost production of its next iPhone by 20%, a bullish indication for expected demand, especially considering last year saw heightened demand due to a “super cycle” in which millions of users upgraded. Although Apple has been seeking to diversify its sources of revenue for years now, fiscal second-quarter results still saw more than 53% of sales come from the iPhone, so it’s little wonder AAPL stock has been hitting all-time highs.
Year-to-date (YTD) performance (through 7/15): +12.3%
Named one of U.S. News’ 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 major music-streaming services like Spotify and Apple Music. Far and away the best-performing stock on this list, Sonos raised its fiscal 2021 outlook in each of its last two quarters, with revenue up 90% year over year last quarter. A surge in spending on home entertainment, as well as a trend among existing customers to purchase more Sonos products has been bullish for Sonos, which is still the least valuable company on this list at a valuation of more than $4 billion.
YTD performance: +42.3%
Match Group (MTCH)
Match Group is the world’s premier online dating company, with brands like Tinder, Match, OkCupid, Hinge, Plenty of Fish and other services all under its umbrella. Tinder is the highest-grossing dating app in the world; its revenue growth reaccelerated in the first quarter, rising 18% year over year after three quarters of growth between 13% and 15%. Non-Tinder revenue is rising even more rapidly, jumping 30% in the first quarter compared with the same quarter last year, driven largely by improved monetization at Hinge, where average revenue per user doubled between the first quarter of 2020 and the first quarter of 2021. Hinge revenue tripled in 2020 and the company expects it to double in 2021. With Bumble (BMBL) now public, Match is no longer the only online dating stock out there, but it remains the best in class in an industry poised for long-term growth.
YTD performance: +7.7%
Like Match, Adobe is another pick that doubles as a bet on a core part of humanity: creativity. The Adobe Creative Cloud includes a handful of software services that are absolutely vital to modern-day creative pursuits, from filmmaking and graphic design to photography and digital content creation. Its Adobe Creative Cloud, which includes services like Acrobat Pro, Dreamweaver, Illustrator, InDesign, Photoshop and Premier, is a major revenue driver, contributing to 25% year-over-year growth in its dominant digital media segment last quarter. It’s rare to find a company of Adobe’s size — it’s worth about $290 billion — consistently growing revenue by 20% or so per year. Another best-in-class pick, Adobe has earned its spot as one of the best tech stocks to buy for 2021.
YTD performance: +21.2%
Cisco Systems (CSCO)
When investors think of tech stocks, many imagine risky, high-priced growth companies that don’t pay dividends. There are several such stocks on this list, but Cisco isn’t one of them. A tried and true blue-chip stock, Cisco is a cash cow that provides essential tech infrastructure like routers, data center products and switches — the unsung heroes that keep today’s increasingly clogged digital highway humming. Cisco trades for a reasonable 22 times earnings and pays a sustainable 2.7% dividend to boot. One of the rare value stocks in a red-hot sector, Cisco broke a five-quarter streak of declining revenue last quarter, and analysts now expect revenue growth both this fiscal year and next. CSCO is a nice bedrock of stability in an otherwise volatile sector.
YTD performance: +22.6%
Alibaba Group (BABA)
Investing in foreign markets has its pros and its cons. E-commerce giant Alibaba, for instance, offers a great opportunity for U.S. investors to gain exposure to the growing Chinese middle class in one of the most high-potential markets on the planet. But the Chinese government also plays by its own rules and wields enormous power, a fact BABA shareholders are all too familiar with this year as Chinese regulators crack down on Big Tech in their own country. China levied a record $2.8 billion fine against Alibaba in April for using heavy-handed tactics with merchants to force them to use its platform. At 25 times earnings, however, BABA’s substandard performance in 2021 presents a nice midyear buying opportunity. It’s not often a company growing so robustly — revenue surged 64% last quarter — goes for such a reasonable multiple. Now playing nice with Chinese regulators, Alibaba’s antitrust issues are more than factored into current prices.
YTD performance: -7.7%
Spotify Technology (SPOT)
It often pays to invest in best-in-class companies, and Spotify fits the bill when it comes to music streaming platforms, ranking as the top music app in both iOS and Android app stores. The company has 356 million monthly active users, 158 million of which are paying, premium members. Spotify is not currently profitable and operating in a competitive industry, so shareholders have been a bit fickle this year, but the business is growing at a healthy pace. Analysts expect 20% revenue growth in 2021 and 2022, and the company’s non-music revenue (think podcasts) is where the margin expansion opportunity lies if and when the company can tame costs. The crowded landscape has led Spotify to begin losing some market share recently, but the company has a devoted user base that, like Netflix (NFLX), may be willing to tolerate modest price hikes — a strategy Spotify has already begun rolling out, with little blowback from consumers.
YTD performance: -21.2%
Cloud storage and collaboration company Dropbox is, relative to many tech stocks, quite cheap. DBX trades for just 19 times forward earnings. In the first quarter, revenue rose 12% and non-GAAP earnings per share surged 103% year over year. Earnings per share (EPS) growth won’t always be so robust, but even modest revenue growth of around 10% this year and next is expected to yield EPS growth of 45% and 13% in 2021 and 2022, respectively. The expansion of distributed work has been nothing but good news for Dropbox, which grew paying users 8% to 15.83 million in the first quarter, and grew average revenue per paying user 5% to $132.55.
YTD performance: +35%
Facebook, a repeat member of the best tech stocks to buy list, continues to fire on all cylinders. The momentum Facebook continues to have for its size is remarkable: Family monthly active people — which measures usage across Facebook, Instagram and WhatsApp applications — rose 15% year over year in the first quarter to a staggering level of 3.45 billion. And although the comps from a year ago were depressed due to the onset of the pandemic, a combination of ad prices rising by 30%, and 12% more ads being served combined to send revenue 48% higher and caused net income to jump 94%. FB, which at 22 times forward earnings still seems like a steal, is rapidly coming up on a $1 trillion valuation.
YTD performance: +26.1%
Last but not least 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 high dividend yield, which currently sits at 7.3%. 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. Still, performance has been lackluster of recent, and the company is shedding its WarnerMedia assets for $43 billion, unraveling an $85 billion deal to acquire an umbrella of media assets including HBO, CNN, TBS, the Warner Bros. film studio and other properties just three years ago. At least now the company will have more capital to focus on its primary telecom business.
YTD performance: +4.2%
10 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)
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Update 07/19/21: This story was published at an earlier date and has been updated with new information.