How to invest in the tech sector, according to a long-time analyst
A recent sell-off in tech has discouraged some investors from investing in growth stocks as fears of further rate hikes wash over them. According to DA Davidson’s Tom Forte, by following certain principles, investors can train themselves to play the market and make a worthwhile bet on the sector. The analyst, who has covered the industry since 1996, shared 13 insights and principles investors should consider when investing in tech stocks in a note to clients Monday. These key concepts include social selling, international expansion, payments and artificial intelligence, which the company uses to evaluate technology companies and decipher their strengths and weaknesses. Here are some of the top stocks that Forte thinks are well-positioned to take advantage of these ideas. Apple’s stock has been the best-performing of the big tech names, falling more than 5% this year. Forte expects the iPhone maker to increase revenue thanks to its international expansion and the company’s foray into mobile and payments. Both Apple and Google are also the best-positioned names to use social media — or what Forte calls social selling — to connect with consumers. Also, both companies dominate almost 100% of mobile operating systems, he said. “Apple and Google act in their respective best interests when it comes to privacy,” Forte wrote. “As a result, a number of social networking companies are finding it more difficult to generate digital advertising revenue.” Many tech stocks benefited in the early days of the pandemic but have been hurt in recent months by looming interest rate hikes and geopolitical concerns abroad. Higher interest rates are particularly hard on tech stocks, as they reduce the value of those companies’ future cash flows. Forte believes that Amazon, Roku, and Shopify are among a small handful of companies poised to continue posting double-digit compound annual sales growth rates between fiscal years 2021 and 2024, even in this macro environment. Roku shares are down about 69% this year as the advertising market remains under pressure. Last month, the company’s stock plummeted 23% in one day after missing sales and earnings estimates and releasing disappointing forecasts. Looking ahead, Forte believes the company could see CAGR revenue growth of 14.3% over the long term as it capitalizes on over-the-top video, mobile and its expansion into international markets. — CNBC’s Michael Bloom contributed coverage