Top 5 Best Tech Stocks to Buy Now for 2020


 Top 5 Best Tech Stocks to Buy Now for 2020
 Top 5 Best Tech Stocks to Buy Now for 2020
If you want growth and returns, there’sno better stock sector than tech. The technology companies in the S&P 500 havedoubled the market return over the last five years and it may just be getting started! In this video, I’ll show you how to findthe best tech stocks to buy then reveal the top five stocks for your portfolio. We’re talking top tech stocks to buy todayon Let’s Talk Money! Beat debt. Make money. Make your money work for you.

Creating the financial future you deserve. Let's Talk Money. Hey Bowtie Nation, Joseph Hogue with the Let’sTalk Money channel. A special shout-out to all you in the nation,thank you for spending a part of your day here. If you’re not part of the community yet,just click that little red subscribe button.

 It’s free and you’ll never miss an episode. We’re starting a great series of videostoday, an idea straight out of a suggestion from one of you in the bow-tie nation. Over 11 episodes, we’ll be looking at thebest stocks to buy but doing it in a way that’s not only going to grow your portfolio butprotect it as well. Now those of you in the nation have heardme say how important it is to pick stocks from each sector of the economy.

We’re talking stocks from energy companies,tech, consumer goods and so on. Too many investors get excited about one specificsector like that growth in tech or the dividends in consumer staples, they plow all their moneyinto stocks in just a couple of sectors and get absolutely destroyed in the next bearmarket. A lot of times, you may not even realize it’shappening until it’s too late. You might be screening for dividend stocksto buy.

You narrow your list and invest, but by virtueof limiting your picks to the top dividend stocks, you might also be limiting your portfolioto those sectors that pay the highest dividends. This is supremely important and I can’tbelieve we haven’t covered yet on the channel.

 Over these 11 episodes, one for each stocksector, I’ll show you how to pick the best of breed in each. We’ll look at some of the big trends andhow to pick stocks to buy, then I’ll reveal my five favorite stocks in each.

Now understand, you don’t necessarily needall five stocks in all 11 sectors for a great portfolio. I would recommend putting at least two orthree stocks from each sector into your portfolio.

 I’m also going to show you a couple of exchangetraded funds you can buy to get broad exposure to the sectors and share the simple strategyI use to get market returns plus a few extra percent every single year. So let’s get started because I’m excitedto talk tech with you.

 If you’re coming in later to the series,I’ll link in the first comment below the video to the most recent video. I’ll also be linking in the video description,all the videos in the series so you can see all the stocks for each sector. If you’re coming in later, will link upthe other videos in the series in the first comment. If you don’t go with any of the stocks ina sector, consider a position in one of the sector funds to get that exposure. Here’s that graphic again of the stock sectorsand today we’ll be looking at tech including semiconductors, software, storage and internetcompanies.

Picking these five tech stocks to buy, I screenedfor a lot of the fundamentals we’ve talked about on the channel. I screened for companies with increasing revenueand cash flow over the last few years. With the economy growing, this was most companiesbut it did screen out a few losers in downward trends. Another factor I looked for, and all of youin the bowtie nation are probably tired of hearing me talk about this one is the operatingmargin. If there is one single factor you look forin picking stocks, it should be the operating margin. This is the operating income divided by thetotal sales for a company over the period, usually three months or a year. So if we look at the income statement here,we see sales or revenue at the top with $259 billion for Apple. After the cost of goods or materials, thestatement deducts the costs of running the company, these operating costs.

Now what you get after removing the costsof running the business; marketing, administration, all these costs, is the operating profit,this $64.4 billion for Apple. It’s the truest and best measure for management’sability of creating a profit from the business.

And when you take that operating profit dividedby the sales number, you get a profit percentage for how efficient and effective the businessis. The pundits and financial media like to talkabout the bottom-line earnings and the profit margin. Don’t look at that. The earnings includes the effect of debt andfinancial leverage as well as accounting tricks on taxes. Analysts look at this operating margin asthe real measure of management’s success. When you compare this operating profitabilityacross companies in the same sector and industry, you see which are best run and have thosecompetitive advantages. I also screened for a positive dividend yieldand this is one where a lot of tech investors will disagree. As growth companies, a lot of tech stocksaren’t going to pay dividends.

The company is reinvesting every dime forthat faster growth and that’s fine, I just like getting a cash return on my investments. I like the cash discipline on management froma dividend. Management can’t throw cash at worthlessacquisitions and low-return projects because it has to meet that dividend. But this is probably one you can leave outif you like and I made an exception for two of our tech stocks.

You’ll open up the list to all those companiesthat don’t pay a dividend and will still find some solid investments. Beyond that fundamental analysis when pickingthese tech stocks, I looked for companies with a competitive advantage and catalystsfor growth. The truth is, the market already knows whichcompanies have faster revenue growth, which have higher operating margins and all thatis mostly baked into the current price. It’s the competitive advantages and thosecatalysts that offer the real opportunity for long-term return. '

These are the companies with pricing advantages,brand advantages and upcoming events that can really boost their stock price. I’ll share those five tech stocks I foundnext but first I want to highlight three tech funds you might also consider. If you can’t find stocks you really like,so if no stocks fit your screening, you might consider putting some money into these fundsjust to get that exposure to tech investing. Then you can invest in stocks of other sectorslike we’ll talk about in the series but still have some of that faster growth fromtech. Our first tech fund is the Technology SelectSector SPDR, ticker XLK. This holds shares of 68 of the largest techcompanies based in the U.S. and is pretty well diversified across all the separate industries.

 Companies in the fund have an average marketcap of half a billion dollars so we’re talking the largest like Microsoft, Apple and Intel. The fund charges an expense ratio of 0.13%which is extremely low and pays a 1.25% dividend yield. While that XLK will give you broad exposureacross tech stocks, this next one is more focused in one of the biggest tech themesright now. The Global X Cloud Computing ETF, ticker CLOU,holds shares of 36 companies offering cloud services and positioned to take advantageof the theme.

These companies are quite a bit smaller withan average size of $100 billion and some are based outside the U.S. so you get some internationalexposure here. Understand that the expense ratio, that’sthe money that gets deducted out of assets each year to pay the portfolio management,that’s 0.68% a year so quite a bit higher but the idea is that these stocks are goingto grow faster than the broader tech space as well. The last fund here before we get to thosefive tech stocks to buy is the Global X Internet of Things ETF, ticker SNSR, and this one investsin all the companies positioned to take advantage of WiFi, 5G and fiber optics.

This is going to be a huge trend over thenext ten years but I feel like it’s a little less well defined compared to maybe that cloudfund or other themes. Here you’ve got 50 companies spread acrosssemiconductors, software, hardware, telecom…really across all of tech. These are smaller companies with an averagemarket cap of only $26 billion but still established companies. The fund is also on the expensive side withthat 0.68% expense ratio but could more than make up for it in growth.

 Even if you do invest in a few tech stockslike the ones I’ll highlight now, you might still consider putting money in some of thesefunds. That’s going to give you the opportunityfor higher returns from that individual stock pick but also spread your money out a littleacross the hundreds of companies in the fund. Our first couple of tech stocks will comeas no surprise and are really bellwethers in the space. We start with Intel Corporation, ticker INTC,and its 2.24% dividend. Despite a really competitive market for semiconductors,Intel has been able to consistently beat expectations.

For example, even with PC volumes down 10%on a year-over-year basis in the third quarter, the company reported sales that were $1.2billion over earlier guidance. A lot of the strength was on a higher salesprice with prices higher by three or four percent across products. And what this means to me, in a really competitivemarket, is the power of Intel’s brand and competitive advantages, that it’s able todrive that kind of pricing power.

Shares are trading around 12-times earningswhich are expected flat over the next year but you can see how management has consistentlyand easily beaten expectations. The board has increased the share buybackprogram to $20 billion over the next 18 months so that will drive earnings per share. Intel will benefit from both the cloud computingand internet of things themes and I think this is where the big upside surprises couldcome from in the next several years.

The average analyst price target on Intelis the widest we’ll see in the tech stock group with a high of $70 and a low of $42per share. Most of the analysts are grouped right around$60 to $65 a share despite this range. I think the shares could easily go north of$60 each with earnings around $4.98 per share which is about 7% higher than expectations. Add that 9% price growth to a 2%+ dividendand you’ve got a solid double-digit return here. Our next tech pick is one of the biggest,trillion-dollar Microsoft, ticker MSFT, and it’s 1.4% dividend yield.

Microsoft is quite a bit more expensive thanI usually like to buy but just got a huge boost with the Pentagon’s $10 billion cloudcomputing contract. The company’s Azure cloud platform was alreadyits big growth driver but this contract is absolutely huge. It’s not so much the size of the contractbut the fact that this is probably going to open up a wave of federal and state cloudcontracts for the company, none of which are priced into the shares yet.

Now of course, Amazon will contest the Pentagoncontract in courts and might have a decent case but it’s doubtful this one gets overturned. The rumors are that President Trump soughtto influence the Pentagon’s decision because Amazon’s founder Jeff Bezos also owns theWashington Post.

It’s going to be tough to prove and evenif there is some evidence here, I think Microsoft still comes out with the contract. Microsoft’s cloud business also landed a$1.8 billion contract from the Department of Defense this year and a $2 billion contractfrom AT&T with CEO Nadella saying he has a line of sight to many more such deals.

 The shares are expensive at 28-times earningsbut profits are expected to jump 10% over the next year and, just like Intel, you cansee how management is consistently beating expectations. I actually think earnings could top $6 a shareover the next year and just keep going from there. Microsoft is one of the most widely followedtech stocks among analysts and price targets are in a really narrow range here. The lowest target at $155 a share is justover 8% higher than the current price while the top target of $170 per share is almost20% higher. I did a video highlighting Microsoft in Augustwith a buy recommendation.

The shares are up 8% from there and I likethat $160 to $170 range for the shares. Probably the biggest surprise pick and onenobody is watching is Logitech International, ticker LOGI. Logitech is a Swiss maker of computer andmobile accessories and I think could potentially be an acquisition target eventually. The company makes some of the most popularaccessories in the industry.

 I’ve got two of their products on my deskright now, the Yeti microphone and the c920 webcam which are pretty much both the defactoused by everyone in the blogging and podcasting space. Logitech recently acquired Streamlabs, againthe standout leader in its space for video streaming. So here you’ve got a company leading inits product categories, growing sales and cash flows by double-digits consistently andhas a pristine balance sheet with no debt and half a billion in cash…that’s a recipefor some larger player to come and buy it out.

 The company is just under $7 billion marketcap so this would be an easy buy for so many in the tech space. Shares are trading at just under 20-timesearnings which are expected 4% higher over the next four quarters but this stock isn’twidely covered by analysts. With solid consumption in gaming and its othercore products, I think earnings could come out around $2.35 per share or higher. We’ve got just three ranked analysts withtargets on Logitech so take this with a grain of salt but that low target is around $36per share with a high target of $58 per share.

 I like the growth potential on this one andthere’s a good chance we see a big pop someday on a buyout offer. Now I’ve got two tech stocks that a lotof investors are going to argue with but I truly believe these are the stocks of thefuture. Our first one is Alibaba Group, ticker BABA,which is the Amazon of China. Between all the sites owned by Alibaba, ithas almost a monopoly control in Chines online consumption and it’s using the massive datait collects to become a data powerhouse as well.

To give you an idea of scale here, just twoof the company’s retail platforms, Taobao and Tmall, generated upwards of $909 billionin merchandise sales last year, more than Amazon and eBay combined! Alibaba is spreading globally much more effectivelythan Amazon has been able to do, especially across Asia, and the company’s cloud platformhas a distinct advantage over Amazon’s AWS or Microsoft’s Azure in China. Shares of Alibaba trade for 28-times earnings,the data here is in Chinese Yuan so converted earnings are around $6.26 per share, but comparethat to Amazon’s stock price of 78-times earnings and Alibaba is a steal.

 Earnings are expected 19% higher over thenext year and this one has decades of growth ahead of it. Alibaba is widely covered by analysts witha low target of $207 and a high of $250 per share for upwards of 42% return from the currentprice. This is a long-term must own in my book soif you’re bummed about not being able to buy a share of Amazon for $1,800 each thenpick up Alibaba here and wait for it to reach that price.

If Alibaba is the Amazon of China then ournext tech pick, Baidu, ticker BIDU, is the Google of the world’s second largest economy. I love these two China plays because theyare the mirror twins of Amazon and Google. Baidu dominates search traffic in China, justlike Google, it’s made investments in AI and self-driving, it’s got an online videoplatform just like YouTube.

It’s basically just copying one of the mostsuccessful businesses in history and doing it in what could soon be the largest economyin the world. Shares of Baidu trade for 15.6-times earnings,again this is shown in Chinese Yuan, and even though earnings are expected lower next yearon some divestitures, management has beaten expectations by an 37% on average over thelast eight quarters. Again, take that winning business model, applyit to the Chinese growth story and get it for 15-times earnings versus a cost of 27-timesearnings for shares of Google. I think this is another one you can add toyour long-term retirement plan and be very happy.

Analyst targets range from $108 per shareon the low side to $181 per share over the next year and growth here is really over thenext decade or better.

 Click on the video to the right for the latestupdate to our dividend portfolio challenge. This group of dividend stocks is beating themarket and producing a cash yield double what the index is paying. Don’t forget to join the Let’s Talk Moneycommunity by tapping that subscribe button and clicking the bell notification.

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