In this article, we take a look at the 5 best technology stocks to buy for long term. If you want to check out our detailed analysis of the tech industry, go straight to 10 Best Technology Stocks to Buy for Long Term.
5. Apple Inc. (NASDAQ:AAPL)
Number of Hedge Fund Holders: 131
Apple Inc. (NASDAQ:AAPL) is an American technology company with a market cap of $2.37 trillion, highest in the world. Apple Inc. (NASDAQ:AAPL) develops both software (operating systems) and hardware for its line of smartphones, tablets and computers.
When it comes to profitability, Apple has a massive return on equity of 149%. The company has an annual dividend yield of 0.63% as of June 6. Its most recent payout was $0.22 per share on February 10, in line with previous payouts.
Apple was talked about in the Q4, 2021 investor letter by ClearBridge Investments. This is what the letter said:
“Despite these mixed emerging growth results, the ClearBridge Global Growth Strategy outperformed the benchmark due to resilience among our secular and structural growth holdings. The bulk of these contributions came from U.S. mega-cap growth stocks Apple and Microsoft which continued to uniquely act both offensively and defensively as they have through most of the pandemic.”
On June 2, Evercore ISI analyst Amit Daryanani reiterated Apple with an ‘Outperform’ rating on the shares with a price target of $210. In the first quarter of 2022, Berkshire Hathaway, managed by famed investor Warren Buffett, was the leading stakeholder in Apple with shares worth $155 billion.
In terms of its future goals, Apple is putting focus towards launching its own search engine in 2023 and is in the research & development phase for the design and production of its own autonomous electric vehicle.
4. Meta Platforms, Inc. (NASDAQ:FB)
Number of Hedge Fund Holders: 200
Meta Platforms, Inc. (NASDAQ:FB) formerly known as Facebook is the largest social media conglomerate in the world.
Vulcan Value Partners, an asset management firm, discussed Meta in their Q4, 2021 investor letter and here’s what they said:
“Meta Platforms, Inc. (NASDAQ:FB), the parent company of Facebook, reported excellent operating results in 2021. Its revenue increased 37%, operating earnings increased 40%, and the company generated $40 billion of free cash flow. Despite these excellent results, Meta experienced extreme volatility in its stock price during the first quarter. We believe that two factors are responsible for this volatility. First, the company quantified the headwind to revenue from Apple’s recent privacy changes in the amount of approximately $10 billion for 2022. Meta is rebuilding its advertising technology, and we believe the long-term headwinds from Apple’s privacy changes will be limited because Meta will create a suitable solution. Second, Meta Platforms, Inc. (NASDAQ:FB) continues to invest heavily into its Reality Labs segment, also known as the metaverse. While we believe the metaverse presents great opportunity for Meta, we are not assigning any value to it in our valuation work. While 2022 may be challenging for Meta, the company’s competitive advantages are still intact, and the company trades at a significant discount to our estimate of its intrinsic value. Despite our concerns about a possible recession, we expect Meta to return to double-digit bottom line growth next year.”
On June 1, Morgan Stanley analyst Brian Nowak lowered the price target on Meta to $300 from $330 and kept an ‘Overweight’ rating on the stock.
Meta’s famous social media platforms include Facebook, Instagram and WhatsApp. The company’s social media user-base is over 3 billion as of 2022.
In October 2021, the CEO of Meta announced an ambitious plan to evolve Facebook to a virtual reality ecosystem, they called the metaverse. In the following years, it was reported that Meta is building a powerful AI accelerated supercomputer in order to boost transition towards the metaverse.
The company also acquired Oculus, a virtual reality technology company in 2014 that amalgamated with Meta’s reality labs to produce hardware and software for virtual reality. FB’s fundamentals establish it as a value stock with a low P/E ratio of 14 as of the first quarter of 2022. The company also relies less than half on debt as compared to equity and has a current ratio of 2.8, lowering long term as well as short term risks. The consensus EPS forecast is $16 for December 2025.
3. Alphabet Inc. (NASDAQ:GOOGL)
Number of Hedge Fund Holders: 205
Alphabet Inc. (NASDAQ:GOOG) is an American technology conglomerate and the parent company of Google. Alphabet is involved in the business of information technology, computing and biotechnology.
Alphabet Inc has a low risk profile as far as investment goes. The company boasts a D/E ratio of 5.8% and a current ratio of 2.87 as of the first quarter of 2022. The analyst sentiment surrounding Alphabet is also favorable.
On June 2, Piper Sandler analyst Thomas Champion lowered the price target on Alphabet Inc. to $2,775 down from $2,900 and kept an ‘Overweight’ rating on the stock. On May 28, AI Root wrote in the then Barron’s edition that stocks like Alphabet and Meta are bargain stocks to buy now amid the market downturn. The analyst noted that although investors are rightly concerned during such downturns to avoid “picking up a dud” but there are opportunities amid the rubble and says Alphabet and Meta are discount buys at the moment.
Here is what Vulcan Value Partners had to say about Alphabet in their investor letter from the last quarter of 2021.
“In contrast, we made a different kind of mistake about a decade ago. Google, now Alphabet Inc. (NASDAQ:GOOG), performed very well for us while we owned it. The company kept outperforming our assumptions and we kept lowering them to be conservative. “Trees do not grow to the sky.” The stock kept going up and our value grew but did not keep pace with the stock. It hit our estimate of fair value and we sold it with a nice gain, patting ourselves on the back. We kept following the company and what they actually did over the next several years was roughly double the assumptions we used to value it. Therefore, our value was too conservative, and we sold it too cheaply, missing many years of compounding. Fortunately, we experienced some volatility several years ago that allowed us to purchase Alphabet Inc. (NASDAQ:GOOG) (Google) again with a margin of safety.”
Apart from the search engine Google, the company provides other services on the software side, most prominent of which include Chrome (the most popular web browser), Adwords for web advertisement, Google Cloud, Android operating system (the default operating system in over 3 billion smartphones and tablets) and video sharing application Youtube with 2.6 billion active users.
On the hardware side, two of its most popular business lines include Google Pixel and Google Nest. Alphabet designs and manufactures laptops, smartphones, tablets and earbuds among other accessories through its Google Pixel business-line. Through its Google Nest business-line, it provides hardware solutions like smoke detectors, smart thermostats, wireless routers, smart media players and displays and speakers etc.
Alphabet Inc. (NASDAQ:GOOG) also owns and operates Verily, a biotechnology research & development lab with various biotech products to offer.
2. Microsoft Corporation (NASDAQ:MSFT)
Number of Hedge Fund Holders: 259
Microsoft Corporation (NASDAQ:MSFT) is the world’s second most valuable company in the world by market cap. Unlike many on the list of 10 best technology stocks to buy for the long term, Microsoft pays out dividends to its shareholders. Its latest dividend payout of $0.62 per share is due on June 9 in line with its dividend payment history.
On May 23, Jefferies analyst Brent Thill lowered the price target on Microsoft to $325 down from $400 and kept a ‘Buy’ rating on the shares. Microsoft beat analyst expectations in its quarterly filings of Q1, 2022. With a revenue of $49.3 and EPS of $2.22, it beat consensus estimates on EPS and revenue by $0.02 and $311.18 million respectively. Its consensus EPS forecast for July 2024 stands at $12.09 based on the estimates of 7 analysts.
Microsoft Corporation produces both software and hardware products. Its most popular products on the software side include windows operating systems, Office Suite, Bing, Skype, Visual Studio and Azure among others. On the hardware side, its most popular product includes the Xbox gaming console.
Fisher Asset Management was the most bullish on MSFT stock among the 259 bullish hedge funds in the first quarter of 2022. The fund managed by Ken Fisher had Microsoft shares worth $8.6 billion.
This is what Baron Opportunity Fund had to say about Microsoft in their Q4, 2021 investor letter:
“Shares of Microsoft Corporation, a cloud-software leader and provider of software productivity tools and infrastructure, rose during the quarter, following a strong earnings report highlighting solid demand for its broad product stack and continued momentum migrating its business to the cloud. Microsoft’s results continued to be strong across the board, with total revenue growing 20% in constant currency, beating Street estimates by 3%; an acceleration in Commercial Cloud revenue to 34% constant-currency growth; operating margins expanding to just under 45%; earnings growth of 23%; and free cash flow growth of 30%. We believe the company is positioned to deliver 13% to 15% organic growth over the next three years, underpinned by total addressable market expansion and continued market share gains across its disruptive cloud product portfolio.”
1. Amazon.com, Inc. (NASDAQ:AMZN)
Number of Hedge Fund Holders: 271
Amazon.com, Inc. (NASDAQ:AMZN) is the number one on the list of the 10 best technology stocks to buy for the long term, thanks to the number of hedge fund holders which amount to 271. Amazon is an e-commerce giant with secondary services as well like Amazon Web services and Amazon Prime Video.
Here is what the Baron Funds had to say about Amazon in their Q1, 2022 investor letter:
“Jeff Bezos sums up the current market behavior well in his 2000 shareholder letter where he quoted Benjamin Graham’s famous statement that, in the short term, a stock market is a voting machine, while in the long term, it is a weighing machine, saying that Amazon (NASDAQ:AMZN) is a “company that wants to be weighed, and over time we will be – over the long term, all companies are. In the meantime, we have our heads down working to build a heavier and heavier company.”
We have a lot of conviction that our businesses are doing the same – working to build heavier and heavier companies.”
On June 1, Morgan Stanley analyst Brian Nowak lowered the price target on Amazon.com, Inc. (NASDAQ:AMZN) to $3,500 down from $3,800 and kept an Overweight rating on the shares. He lowered the estimates across online ad and e-commerce platforms as he adopted a more conservative base case to account for rising macro as well as micro uncertainties. The analyst now models around 13% and 16% YoY online ad growth and around 8% and 10% growth in e-commerce in 2022 and 2023, respectively.
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