- 2014 has been a roller coaster ride for technology stocks.
- While there have been outperformers like Apple and Microsoft, there has been an equal number of underperformers like Twitter and Amazon.
- Here is our list of top 10 technology stocks which have outperformed in 2014 and are primed for further upside in 2015.
The year 2014 was a great one for technology stocks with China’s biggest e-tailer Alibaba going public. The entire technology sector saw returns of around 18% YTD. As we head into 2015, we take a look at some of the best performing tech stocks of 2014. Here is the list of our top 10 technology stocks which have outperformed the S&P 500 (12.02% year to date) in 2014.
YTD Returns: 39.46%
APPLE (AAPL), one of the greatest tech innovators of our time is a company an investor cannot ignore. With a market capitalization of over $650 billion it makes other technology mammoths look puny. 2014 was a very good year for its investors as the company recouped all the losses of 2012 and 2013. This made it possible for the stock to rise by 39.46% in 2014 which is over 25 percentage points above the S&P index. Apple saw expansion in margins which were mainly contributed by iPhone 6 sales. It has practically gobbled the entire pie of profit share in the smart phone category accounting for over 86% of the entire market!! This is a staggering percentage which shows the effectiveness of its overall market strategy and the impact of iPhone6 sales will drive the stock price in FY 2015 as well. Currently the stock is trading at a reasonable PE ratio of 17.38. (See: Apple stock chart)
YTD Returns: 46.17%
Facebook (FB) has been one of the top performers in the social media space. Adoption of smartphones, and the unbundling of Facebook have been positives for the company. The stock has climbed by 46.17% in 2014. It is also looking into newer areas like ‘Facebook at work’. According to a recent Comscore report Facebook accounted for a total of 21% time spent on internet. The stock has been rewarded with high valuation on the back of high growth rate. It is currently trading at a PE ratio of 75.79. Whereas other social media stocks have not fared well in 2014, Facebook has been able to eclipse competition in this area due to its huge customer base and higher growth. The stock should continue with the current bullish trend in 2015. (See: Facebook stock chart)
YTD Returns: 25.82%
Yahoo (YHOO) has shown good growth in the past two years. Yahoo received a windfall gain of $8.3 billion (before taxes) by selling 120 million shares in Alibaba. Currently its stake in Alibaba alone accounts for $43 billion ($28 billion after taxes) of Yahoo’s $48.20 billion in market cap. This should provide a good hedge against any downward slide, and we see a solid upside potential for Yahoo. The stock has gained 25.82% in 2014. The company has also invested heavily in a host of startups under Marissa Mayer in order to increase the overall footprint within the the mobile advertising segment, and video ad space. These acquisitions should start showing results in the next year giving a further fillip to the company. As the company transfers the cash to shareholders the stock should get a good momentum in 2015. (See: Yahoo stock chart)
YTD Returns: 27.39%
Microsoft (MSFT) has risen 27.39% in 2014. This is also a top stock for value investors. It has given a dividend yield of 2.6% with payout ratio which is at a very modest 43.38%. Under the new CEO Satya Nadella, Microsoft has taken an aggressive approach to tackle the onslaught from Smart Devices. The company has been successful with its Windows Azure offering and is giving tough competition to Amazon in the cloud segment. It also attempted to make its position stronger in the smartphone arena with the Nokia acquisition. We feel that resurgent PC demand will drive Microsoft stock price in 2015. The company seems set for a long term bullish trend and is trading at a reasonable PE ratio of 18.68. (See: Microsoft stock chart)
YTD Returns: 31.68%
Baidu INC (BIDU) is an internet titan in China. Being one of the biggest search engines in the most populous nation gives it enormous scope to grow. The company has shown impressive revenue growth and profitability (See: Baidu Q3 Earnings), and has given a return of 31.68%. The stock is trading at PE ratio of 40.31 which is lower than Alibaba but higher than Google’s 26.36. With Baidu's global expansion taking shape, and a host of investments in companies like Uber touted to be the hottest upcoming tech IPOs, Baidu definitely looks attractive. (See: Baidu stock chart)
YTD Returns: 42.60%
Hewlett-Packard Company (HPQ) has risen by 42.60% in 2014. The stock hit its bottom 2 years back in December 2012 and since then has been able to recover much of the lost ground. There are several areas where the HP faces stiff business environment. However, with new strategic moves it should be in a better position to handle them. After the imminent split within the company which will separate its hardware and software divisions it should come out as a more agile organization better placed to face the competition. With a PE ratio of 15.22 it is not overpriced and may give investors good returns if the future strategic moves of the company come to fruition. (See: HP stock chart)
YTD Returns: 41.75%
SanDisk (SNDK) stock has risen by 41.75% this year. It has seen a major bullish trend for the past two years. It is projected that the NAND and SSD technology segment will provide major growth in the future. The company has also been able to beat the earnings estimate for past 10 quarters which has provided a huge momentum to the stock. Due to this SanDisk comes out as a major player when looking at the best stocks for 2014. Currently the stock has a PE ratio of 20.76 which is less than over 22x ratio for the semiconductor industry. It gives a dividend yield of 1.2%. The company has enough free cash flow to return cash back to the investors through increased dividend which should lead to better growth prospects for the stock. (See: SanDisk stock chart)
YTD Returns: 40.13%
Intel (INTC) has a solid management which can propel it to new heights. It was hit by a double whammy during the recession. Due to this it never figured in the list of top stocks in the past six years. On one side it faced lower demand in its PC business due to financial recession and at the same time saw a growth in smart phone and tablet business which chipped away its revenue base in the PC business.
Intel has forayed into new areas to bolster growth. It is making an aggressive effort to enter the smartphone business and is spending enormous sums to gain market share. It is also getting into higher growth businesses like ‘Internet of things’ and data centers which would have better margins than the mobile segment. 2015 could be a watershed year for the company as the company tries to navigate the changing market landscape. The stock is trading at PE ratio of 17.36 and giving a dividend yield of 2.47%. (See: Intel stock chart)
YTD Returns: 23.50%
Texas Instruments (TXN) gave a return of 23.50% and a dividend yield of 2.51% in 2014. Its free cash flow jumped 20% over the previous year. As the free cash flow increases, the company can give double digit growth in dividend which would make it an ideal “buy and hold stock” in the technology sector. It has focused all its energy on its core products having longer life cycles and better margins. This was done by unloading underperforming areas of business like legacy wireless business. The PE ratio for the company is at 23.86. The company has a good product pipeline to give sustainable results. (See: Texas Instruments stock chart)
YTD Returns: 23.50%
Cisco (CSCO) provided returns of 23.81%, and a dividend yield of 2.74% in 2014. With the adoption of cloud technology, and special focus to ‘Internet of Things’ the future growth prospects of the firm look promising. It is trading at 18.81 PE and should be a good value investment in the technology sector in 2015. (See: Cisco stock chart)
For every investment an age old adage reaffirmed by Warren Buffett must be followed:
"It's far better to buy a wonderful company at a fair price than a fair company at a wonderful price."
This is truer for technology stocks due to higher swings in their valuation. Hence, we have looked at companies which have not only performed well in 2014 but can also be termed as best stocks for 2015, because they are trading at a reasonable valuations and have the potential of giving good returns for investors.
Which other stocks do you think are primed for a bull run in 2015? Do let us know in the comments section below.