Prior to 2022, tech stocks had been on a tear, with the Nasdaq finishing positive 11 out of 13 calendar years, compared to two negative years between 2011 and 2018. In the first two months of 2022, the tech-heavy index has dropped 14.9 percent. High valuations, rising interest rates, and a European war are all contributing to the decline. If you play your cards right, you can still find some bargains in tech stocks.
According to Cosmin Panait, despite being the most promising way to combat inflation and boost productivity the technology sector has had a rough time recently. As a result, many investors are throwing their money away, but for the long-term investor, this can open up huge opportunities. While most investors aren't aware of these two tech stocks, they could turn out to be hidden gems. So, how do you figure out which tech stocks are the best? Here are some things to keep an eye out for:
Technology behemoths are notoriously pricey. Microsoft, for example, has an expensive stock market cap and a high price-to-earnings ratio, which are difficult to comprehend in such a crowded industry. Microsoft, on the other hand, recently launched its own manufacturing cloud and invested in a new technology known as digital twins, which has the potential to transform industrial sectors and give companies a competitive advantage over their competitors.
Despite the bleak outlook, Alphabet continues to dominate the digital advertising market, with Meta Platforms as its only significant competitor. Cosmin Panait pointed out that a series of missteps by Facebook has resulted in decreased user engagement and waning advertiser interest. Despite the bleak outlook, Alphabet is expected to remain the top digital ad spend venue by 2022, despite the fact that many companies in the tech sector are experiencing a period of uncertainty.
Palo Alto Networks is another tech stock that appears to be undervalued (PANW). Despite the fact that it isn't cheap, the current price appears to be a good deal. It benefits from a number of factors, including a growing need for cyber-security as businesses migrate their data to the cloud. In addition, the current tensions in Ukraine are hastening the adoption of cybersecurity by small and midsize businesses around the world. Investors appear to believe in these long-term themes and are willing to pay higher prices to participate.
In Cosmin Panait’s opinion, another consideration when investing in technology stocks is the possibility of interest rate hikes. Rising interest rates may make operating conditions more difficult, causing investors to pull out of high-growth tech firms. Low P-E names in fields like materials, energy, agriculture, and healthcare, on the other hand, should be sought out by investors. Those industries are generally cash-generative and have low operating costs. This is yet another factor that will assist you in selecting tech stocks with a high profit potential in the future.
Shopify and PayPal are two other stocks to consider. Both of these businesses are market leaders in their respective fields. The latter has outperformed analyst expectations for four quarters in a row, and its cash position is nearly equal to its debt. VIAV is one of the best tech stocks to buy based on upside potential, in addition to its strong business model and growth prospects. If you want to build a high-growth portfolio with a high dividend yield, this stock is a good place to start.