For growth investors, technology-related companies have been a good place to park investment capital over the past decade. In innovation, there has been strong growth for which investors have paid more. Accordingly, for those looking for the best possible returns, focusing on high-tech stocks to buy has been a winning strategy.
However, investors are not paying for growth this year. Tech stocks have been hit hard by the Federal Reserve’s interest rate hike program. Unfortunately, with more expected on hikes this week, more valuation volatility may be on the horizon for tech stocks.
That said, despite the ups and downs in the macro environment, investors looking for long-term capital appreciation may want to create a new buy list.
Here’s my list of three top tech stocks that don’t want to beat themselves up later.
| APL | Apple | 157.89 dollars |
| GOOG | Alphabet | $102.56 |
| MSFT | Microsoft | 244.05 dollars |
Apple (APL)
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The largest company by market capitalization in the world, Apple (NASDAQ:APL) really needs no introduction.
This king of consumer demand has completely dominated the smartphone market for almost a decade. Interestingly, Apple has offered investors relatively diverse business lines, with the company’s flagship iPhone product at the forefront. But there are also the Macs, Apple Watch, iPods, and even more profitable accessories (ie AirPods) that have delivered impressive returns over the years.
Apple’s earnings exploded in the wake of the pandemic, fueled by a glut of cheap capital that flowed into rational improvements. Of course, in times of stress, these purchases can be reduced. That said, Apple’s margins are truly impressive, and this is a company with pricing power. Despite Apple’s decision not to raise prices on its flagship iPhone lines this year, it’s clear that consumers are willing to pay for the best technology. Accordingly, over time, Apple is currently an inflation-adjusted technology stock to watch.
As a form of protection, Apple is a company with huge cash reserves and a loyal customer base. These factors should not be underestimated, and should help this company to overcome any turbulence on the horizon. Regardless of how many investors think the future of the economy may be, Apple has proven its ability to grow in good times and bad. So, this is the top stock I just came across.
Alphabet (GOOG)
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Perhaps it is the most famous company in terms of search in the world Alphabet (NASDAQ:GOOG). The core of this company is built on digital advertising, which continues to expand over time. In fact, even during the pandemic, companies haven’t really slowed down their online ad spending. Accordingly, this $1.33 trillion company continued to see price expansion, at which point many were turning bullish.
As can be seen, Alphabet’s strong performance has led to a slowdown in multiples from its core business. With that, investors can pick up a share of GOOG stock at less than 20 times earnings. This is as cheap a growth stock business as I’ve ever seen. Much of this is again related to lower expectations for future growth.
Like other tech companies looking to diversify, Alphabet’s new main growth driver is its cloud business. Over time, this business should offset any of its core search business.
Microsoft (MSFT)
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It is another company with major market share. Microsoft (NASDAQ:MSFT). According to Statista, Windows OS is installed on more than 76 percent of personal computers worldwide, compared to 15.3 percent of Apple’s Mac OS. That’s impressive, and it’s one of the key reasons long-term investors are holding on to software and services leader Microsoft.
Like other mega-cap tech stocks, Microsoft saw a surge during the pandemic. This is due in part to the fact that remote working has become the norm and society’s gradual shift towards it is heating up. As more workers are returning to the office, demand for cloud services continues to soar. As the leader in this space, growing 28 percent year-on-year in this segment alone, Microsoft is a key player to watch in terms of growth.
Microsoft’s valuation multiple certainly reflected this high growth trajectory. This mega-cap tech stock ($1.82 trillion) trades at 25 times earnings. That’s expensive for most companies, they don’t think they’re trading at that kind of price.
That said, Microsoft’s operating margins of around 40% and its high cash-generating core make future cloud-based growth even more attractive. This is a company that I’ve always thought would trade at a premium, and it’s worth a look at this low valuation today.
As of publication date, Chris McDonald owns shares of Apple and Amazon. The opinions expressed in this article are those of the author in accordance with InvestorPlace.com’s publication guidelines.
