How to invest in the tech sector, according to a long-time analyst
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A recent sell-off in tech has dissuaded some investors from entering growth names as they get slammed by fears of further rate hikes. By following certain principles, investors can educate themselves to play the market and make a worthwhile bet on the sector, according to D.A. Davidson’s Tom Forte. The analyst, who has covered the industry since 1996, shared 13 takeaways and principles investors should consider when getting into technology stocks in a note to clients Monday. Those key concepts include social selling, international expansion, payments, and artificial intelligence, which the firm uses to score tech companies and decipher their strengths and weaknesses. Here are some of the best stocks Forte believes are well positioned to capitalize on these ideas. Apple ‘s stock has fared the best among big technology names, down more than 5% this year. Forte expects the iPhone maker to grow sales, thanks to its expansion internationally and the company’s foray into mobile and payments. Both Apple and Google are also the best positioned names able to utilize social networks — or what Forte calls social selling — to connect with consumers. Plus, both companies dominate nearly 100% of mobile operating systems, he said. “Apple and Google are operating in their own, respective, self interests when it comes to privacy,” Forte wrote. “As a result, it is more difficult for a number of social networking companies to generate digital advertising revenue.” Many technology stocks benefited during the early days of the pandemic but have gotten slammed in recent months as rate hikes loom and geopolitical concerns stir abroad. Higher interest rates are especially tough on tech stocks because they reduce the value of those companies’ future cash flow. Forte believes that Amazon , Roku , and Shopify are among a small handful of companies able to continue posting double-digit compound annual growth rates in sales between the fiscal 2021 and 2024 years, even amid this macro environment. Roku shares have cratered about 69% this year as the advertising market remains under pressure. Last month, the company’s stock cratered 23% in one day after missing estimates on the top and bottom lines and issuing disappointing guidance. Going forward, Forte believes the company could see 14.3% CAGR sales growth in the long-term as it benefits from over-the-top video, mobile, and its expansion into international markets. — CNBC’s Michael Bloom contributed reporting
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