Are tech stocks set to cool off this fall? After a powerful run over the past 18 months, there are some troubling signs out of this last earnings season.
The “FAANG stocks” in particular underwhelmed. Facebook Inc. (ticker: FB) sold off despite a strong earnings report, and Amazon.com Inc. ( AMZN) shares got whacked following a big earnings miss. Investors couldn’t be blamed for trimming their exposures to the tech sector after this round of earnings. That said, it’s not all bad news. Beyond the tech titans, many software companies still have a favorable outlook for the back half of 2021.
Meanwhile, the tough earnings season has set up several buy-the-dip opportunities in tech companies as well. Here are five of the best tech stocks to buy heading into August:
— Unity Software Inc. (U)
— Spotify Technology (SPOT)
— Intel Corp. (INTC)
— Salesforce.com Inc. (CRM)
— Roper Technologies Inc. (ROP)
Unity Software (U)
Last week, Facebook CEO Mark Zuckerberg declared that his firm is evolving beyond social media. Now, Facebook will be a “metaverse” company. This set off a furor. Zuckerberg’s vision of a metaverse is an omnipresent virtual reality that spans all devices and locations. This would allow Facebook to supplant Apple Inc.’s ( AAPL) iPhone to become the dominant platform in consumers’ lives.
It’s too early to guess if Facebook will ultimately succeed. Regardless, metaverse stocks will now be a hot commodity, and Unity is the most obvious winner, earning it a spot as one of the best tech stocks to buy this month. It offers a 3D graphics engine for video games, e-commerce, movie production, architecture and more. Unity-powered video games run seamlessly in virtual reality and it is a leading partner with Facebook’s Oculus VR gear already. As Unity rolls out more applications for VR, it will have the first-mover advantage in powering Zuckerberg’s metaverse. Unity CEO John Riccitiello has been laying out the company’s metaverse plans in detail, and now the market is set to catch up with the story.
Spotify shares tumbled last week following a weaker-than-expected earnings report. The company’s user growth slowed and it lowered its outlook for the rest of the year. The end of the pandemic tailwind has caused results to trail off for a variety of tech content companies, including Netflix Inc. ( NFLX), Pinterest Inc. ( PINS), and now Spotify. However, this selling has created a buying opportunity.
Spotify’s shares are down from $387 to about $220 since their February peak. Meanwhile, Spotify’s long-term hold over the music streaming industry has only grown stronger. Meanwhile, it is continuing to invest in other projects such as podcasting and its advertising network which will pay off over a longer time horizon. Like Netflix in its early days, traders are paying too much attention to the noise in Spotify’s quarterly results. This sets up a chance to buy a steep correction in the streaming stock.
Intel shares have seen a summer swoon, and they now trade at their lowest point since December. That’s despite the company offering a bold product map that highlights the company’s technological path forward through at least the year 2025. It was a clear reminder that Intel spends approximately $14 billion per year on research and development and isn’t just going to let AMD Inc. ( AMD) and Nvidia Corp. ( NVDA) keep stealing its thunder.
By comparison, AMD and Nvidia spent $2.3 billion and $4.3 billion on R&D over the past 12 months, respectively. Intel has had its stumbles in recent years, to be fair. And the semiconductor chip shortage hasn’t helped matters either. Still, at less than 12 times earnings, Intel is priced to more than compensate for its missteps. Meanwhile, the company’s other projects, such as the Mobileye autonomous driving unit, offer potential for Intel to surprise folks to the upside. Intel’s value and newfound vision make it one of the best tech stocks to buy in August.
Salesforce stock is ready for an upswing. Shares have been flat to down since September 2020. That’s because Salesforce was in the process of acquiring workplace communications firm Slack in a large deal. This put a lot of pressure on Salesforce’s stock as arbitrageurs shorted CRM shares ahead of the merger. Additionally, some analysts have been concerned that Salesforce may have overpaid for Slack.
Regardless, the merger just closed in July, and Salesforce can start looking forward once again.
This is an opportune time for the company, as the global economy rapidly heats back up. This, in turn, will mean that sales and marketing activity needs to accelerate as well. Salesforce should have a tailwind ahead of it from the core business, plus it gets to start integrating Slack into its broader workplace enterprise cloud. After nearly a year of going nowhere, Salesforce stock is ready to participate in the broader tech rally.
Roper Technologies (ROP)
Roper Technologies is a diversified conglomerate that holds a wide variety of software and industrial businesses. It started as an industrial firm, but management astutely realized many years ago that it should pivot to owning the technology that powers industrial companies, and now it can be justifiably termed a tech stock, broadly speaking. To that end, Roper has built a software business spanning management of power plants, factory automation, insurance, 3D graphics, supply chain, health care IT and much more.
Each business is run as an independent subsidiary with Roper deciding where to invest more capital and optimize things from its headquarters. Roper has been remarkably successful. Its shares have soared 500% over the past 10 years. Even so, it trades at a reasonable 32 times forward earnings despite compounding those earnings at a double-digit annualized clip over the past decade. Since Roper still screens as though it were a stuffy industrial company, many tech investors have missed this burgeoning software conglomerate up until now.
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Update 08/03/21: This story was published at an earlier date and has been updated with new information.