Many investors believe that buying high-growth speculative businesses is the only way to see impressive returns over the long term. While this view has some validity, it also requires an investor who can stomach the volatility that comes with owning young, disruptive companies.
But there are also stable companies with steady earnings and free cash flow improvements that are proven to be worthwhile investments. These unsung heroes lower stock price volatility by consistently generating high returns so you can sleep better at night and stay invested. Both Apple (A.P.L -1.51%) And Veeva Systems (VEEV -2.31%) It agrees with this latter statement, and each of the Nasdaq Composite The index has handily beaten the index so far this year as well as every year since 2014.
Let’s take a look at these two strong tech stocks that offer relatively low volatility and should be considered for your portfolio.
1. Apple
Apple has fallen just 2.5% so far in 2022, a better performance than most indexes. This is because Apple is one of the most powerful brands in the world. Some estimates put Apple’s share of the US smartphone market at 50%. This allowed the company to prosper in any area.
AAPL data via YCharts
Even now, Apple continues to post strong results. In the company’s third fiscal quarter (ending June 25, 2022), revenue reached a Q3 record of $83 billion, up 2 percent year-over-year. While that may not be the most impressive rate of expansion, in an environment where demand for luxury goods (like expensive phones or computers) is declining dramatically, it shows that Apple’s brand name is still alive and well.
However, Apple also has a few opportunities on the horizon that could help this business grow and deliver strong returns to shareholders over the long term. There are rumors that Apple will enter augmented reality (AR) and virtual reality (VR) in the coming years, with possible products in 2023 and 2025. The company has hundreds of people working on AR and VR, which shows that it is Apple. It is very important to be successful in this new industry.
The AR, VR, and mixed reality spaces combined could be worth more than $250 billion by 2028, and Apple could see significant growth if it can capture some new industries. Importantly, Apple generated more than $107.5 billion in free cash flow and nearly $100 billion in net income over the past 12 months, helping to fuel its success in this emerging space.
Apple has the right combination of business stability and valuation, which results in attractive long-term stock returns. So owning Apple might help some investors sleep better at night.
2. Veva Systems
Veva is much smaller than Apple, but has given the same share price strength this year: shares are down 13.9% year to date, beating the Nasdaq.
^IXIC data by YCharts
Most investors may not be familiar with Veva and Apple because Veva provides cloud-based tools for life science businesses. The company is a leader in the space, helping life science companies improve the efficiency of everything from drug testing to marketing, all while maintaining regulatory compliance.
Veva’s equipment is critical to the operations of its customers, which is why the company has achieved stable results this year, despite the difficult macroeconomic environment. The company’s fiscal first quarter (ended April 30, 2022) grew 16 percent year over year to $505 million. It also expects revenue of $2.17 billion for the fiscal year — a continued growth of 17 percent compared to last year. This underscores the company’s critical importance and demonstrates that Veva will continue to drive adoption even as business budgets continue to tighten.
Veva believes it is ahead of the $13 billion industry, leaving plenty of room for growth. As the top dog with the requisite product portfolio, Veva looks poised to be an early adopter of this huge potential. Importantly, it has the cash flow to invest in holding it. Veeva has a free cash flow margin of 40% on a trailing-12-month basis — and will continue to — to capitalize on this opportunity to generate more cash.
Shares are expensive at 50 times free cash flow, but if you’re looking for high-quality businesses with the right balance of stability and potential, they don’t get much better than Veva. So you might consider paying a premium for this top-rated company.
Jamie Lucco has held positions at Apple and Veeva Systems. He has positions in the Motley Fool and recommends Apple and Veeva Systems. The Motley Fool recommends the following options: long March 2023 $120 calls on Apple and short March 2023 calls on $130 on Apple. The Motley Fool has a disclosure policy.
