The Three Underdogs of Silicon Valley
Technology stocks largely delivered the best performance through 2016. Their winning streak has continued into 2017. So what better place to find them than at their home ground in Silicon Valley? Here I bring you three of the best Silicon Valley stocks to watch in 2017.
I know that some investors find it daunting to build portfolios by cherry-picking individual stocks. I, for one, would rather invest passively in a Silicon Valley stock index and simply forget. After all, active research and rebalancing takes both time and money. But until we have such an index, we have to make the hard choices.
Worry not! Leave the research to us here at Profit Confidential.
Now, when it comes to technology stocks, you’ll often find me generously using two terms in my analysis. That is, technology is either “disruptive” and will disrupt an old market segment to create a new one, or it’s just a “fad” that will fade away. The differentiation is critical. Let me tell you why.
Recall GoPro Inc (NYSE:GPRO)—one egregious example of the latter that can hardly ever be forgotten. The action camera maker was touted to be the next big thing out of Silicon Valley at its IPO. Six months later, the cat was out of the bag—GoPro was in fact losing money to cheaper Chinese knock-offs and there was nothing the company could do to bring in more customers.
The rest is history now. Wall Street created hype, pumped the stock, made their money, and dumped it. All this while investors kept hoping in vain that the stock’s downward spiral would someday stop and reverse.
My point is that when you’re hunting for technology stocks, remember that only a handful can make it to the finish line. The rest will pass out somewhere on their way there. Remember, not all technology stocks are worth your time and money!
I don’t mean to scare you. Keep in mind that I called technology stocks the best performers of our time in my prologue. Just compare their one-year performance with the broader market index—the S&P 500 Index. The Nasdaq-100 Technology Sector Index, which includes the top 100 technology stocks, outperformed the market by a wide margin.
Chart courtesy of StockCharts.com
It’s a no-brainer that the best technology stocks are seen by most as great investments for the future.
Silicon Valley Stocks List
Now, whenever a mention of Silicon Valley tech stocks comes up, the first names that pop into our heads are usually of the popular technology titans like Google and its parent company Alphabet Inc (NASDAQ:GOOGL), Amazon.com, Inc. (NASDAQ:AMZN), Apple Inc. (NASDAQ:AAPL), Microsoft Corporation (NASDAQ:MSFT), and Facebook Inc (NASDAQ:FB).
But look beyond the juggernaut of these behemoths and you may find a treasure trove of some great Silicon Valley stocks to watch. I’ve picked out three stocks that, I believe, make for three of the best technology stocks in 2017.
Each of these three tech stocks gives us at least one promising reason to be bullish on it. I’m calling it the X Factor.
1. Symantec (SYMC) Stock
Be honest! The “WannaCry” ransomware cyberattack this month gave you the fright of your life, didn’t it? In case you haven’t heard of it, you might want to Google it now. Computers around the globe are being infected, with the virus holding them hostage for a ransom. In other words, you can’t access your computer unless you pay the ransom.
So, of course, the first pick on my list is a top Silicon Valley cybersecurity stock: Symantec Corporation (NASDAQ:SYMC).
Do you recognize the popular symbol of the black check mark enclosed within an orange circle? It’s the “Norton Antivirus” logo, which is recognized by all and sundry. Many of us have our PCs protected with this antivirus program. And guess who owns it? You got it!
Symantec is one of the world leaders in cybersecurity solutions. This Silicon Valley cybersecurity company has been in business for well over 30 years now.
What I find great about Symantec is its broader focus on both consumers and enterprises, which adds diversity to its revenue. Symantec is not a one-trick pony like most other cybersecurity stocks that have their target market narrowed down to one segment. The company sells equally well to both individual customers and big businesses.
Now, SYMC stock got a beating on the market in the recent quarters, but things are finally looking up. The culprit was a slowdown in its consumer security segment. To counter that, Symantec has recently completed the acquisition of LifeLock Inc.—a company that sells protection against identity theft and credit fraud. This acquisition highly complements Symantec’s consumer security segment, and is poised to give it the needed boost.
Furthermore, Symantec launched a new security product at the beginning of this year, “Norton Core,” which will add to Symantec stock’s growth in the coming years. Norton Core is a protection program for smart homes. With the rise of the Internet of Things (IoT), the threat of spying and prying eyes has heightened, and so has the need for security.
IoT, by the way, is a phenomenon whereby devices within your house, like smartphones, smart TVs, thermostats, CCTV cameras, and baby monitors connect and communicate with each other via wireless internet. Naturally, anything that’s connected to the internet faces a threat of privacy breach. So I’m foreseeing Symantec’s Norton Core witnessing promising demand in the coming years as IoT hits the mainstream, not just within the U.S. but also worldwide.
Bear in mind that the cybersecurity industry, by some estimates, is expected to cross $202.0 billion in sales in the next five years. So Symantec, being a popular household name, could easily take up a big market share.
Coming to SYMC stock, its performance against the market index has been absolutely lustrous in the last one year. I don’t see any significant reason why this uptrend can’t continue in the future. The stock also pays a dividend, which, although small, adds to the stock’s return.
Chart courtesy of StockCharts.com
All in all; SYMC stock is one of the best Silicon Valley stocks to watch right now.
- X Factor: Top player in a high growth market of cybersecurity.
- Bonus: IoT security could become a solid cash cow.
2. Gilead Sciences (GILD) Stock
This Silicon Valley biotechnology company begs little introduction. In the medical community, Gilead Sciences, Inc. (NASDAQ:GILD) is known for being a leader in HIV/AIDS and Hepatitis B and C treatments. So, although it makes drugs for a bunch of other diseases, the aforementioned are its focus areas and that’s exactly where more than 90% of its revenue comes from.
Take, for instance, “Havoni,” Gilead’s biggest cash cow. This drug is used for treating patients with Hepatitis C or infected with both Hepatitis C and B. Only a month ago, phase 2 studies of the drug showed a nearly 99% cure rate in patients, which is a groundbreaking victory for the drug.
To gauge how big this market is for Gilead, the stats by the World Health Organization (WHO) can come in handy. According to WHO, roughly 257 million people around the world are presently infected with Hepatitis B and about 71 million are infected with chronic Hepatitis C. And this market is definitely growing, particularly in the developing nations.
Now, what sets Gilead apart from most biotech Silicon Valley stocks is its impressive financials. It’s often seen that biotech stocks are either unprofitable or marginally profitable. Biotechnology requires quite a lot of spending on research and development (R&D), and such companies are often heavily debt-laden. Those two are the serial killers silently killing these companies.
But not Gilead! Gilead’s profit margins are some of the highest, not just within its industry but broadly within the tech sector. Plus, it has enough cash lying in its bank accounts to pay off all the debt and still be left with some reserves.
Sadly, Gilead’s competition has thrown a scare into Mr. Market, who seems to be bailing on GILD stock. It’s true that revenue growth is levelling out, but that’s a common sight in mature companies. Nonetheless, what really buoys GILD stock from sinking is its “high value” bonus feature.
The company pays a healthy dividend with a yield in excess of three percent and has a solid history of rewarding shareholders through buybacks. The two jointly produce a return on equity of a stunning 72%—a rare number for most technology stocks.
Take note that market beatings have pushed GILD stock down to bargain levels. If I were putting my money on Gilead stock right now, I would rest assured that I wasn’t overpaying for this tech stock in an overheated market.
In a nutshell; GILD stock could be one of the best Silicon Valley stocks to go on your investment radar in 2017.
- X Factor: Trusted brand name with highly successful drugs.
- Bonus: Great dividend and share buyback history.
3. Intel (INTC) Stock
Chipmakers are the nuts and bolts of the technology world. That’s because they provide the brains to all technology gadgets.
Intel Corporation (NASDAQ:INTC) occupies a special place on the list of best Silicon Valley stocks for the same reason. Intel is the kingpin of the tech world. Dozens of other tech companies are powered by this chipmaker.
Notice how Intel is making chips for virtually every next-generation technology you can think of—from virtual reality to augmented reality to self-driving technology and drones, Intel has it all covered.
One particular business segment is of special note here. This segment has seen substantial double digit growth in the last quarters, and although it doesn’t yet match up to Intel’s bigger segments of client computing and data center in terms of revenue, it’s a steadily growing business line that made a staggering $750.0 million in revenue in the last quarter alone and is on its way to cross the $1.0 billion mark.
I’m talking about Intel’s Internet of Things chips segment. As I explained earlier, this phenomenon is on the rise and virtually every big technology company you can think of is manufacturing IoT devices now. Intel is poised to gain a huge market here.
Now, Intel may have its hands dirty in just about every technology you can think of, but many of these initiatives were not homemade—quite a few of these are store bought, that is, acquired.
Acquisitions have played a big role in Intel’s expansion into new tech. I’m looking beyond Altera Corporation (NASDAQ:ALTR) and McAfee, LLC. The recent acquisition of the self-driving technology company—Mobileye NV (NYSE:MBLY)—is of great significance. Like IoT, self-driving technology is also on the rise and expected to hit the mainstream in the next five years.
In other words; this stock can offer both value and growth in the coming years. Growth will come from the aforementioned initiatives, while value will come from Intel dividends which are currently yielding over three percent, and from multi-billion-dollar buybacks Intel pulls every year.
To sum it all up; this is one great Silicon Valley technology stock to watch in 2017.
- X Factor: Producing chips for next generation technologies like IoT, self-driving vehicles, augmented reality, and drones.
- Bonus: Value stock with history of dividends and share buybacks
Bottom Line on Best Silicon Valley Stocks
Let’s acknowledge that finding the right investments in the technology sector is not child’s play. You see, in most other sectors, analysts pick a company, look back at its historical performance, analyze ratios based on current financials, and arrive at forward-looking estimates based on this given information. That’s the established modus operandi.
But that doesn’t work in the technology sector. So our job gets much tougher here. That’s because this sector requires prospective analysis. The typical retrospective analysis fails for technology companies since they are invested in the future.
To get to the right technology stock, we have to analyze the future prospects of a technology, evaluate if it has the potential to make it to the mainstream, and predict if it can last there for a lifetime.
The last part is tricky because the tech sector is dynamic and thus constantly evolving. So it’s not easy to predict how long a company can stick around. The obvious rule of thumb is that any company that won’t innovate with time, will sink into oblivion. GoPro is a glaring example.
But the three technology stocks I picked are the bellwether investments of their respective industries. They have been around for decades and we can safely extrapolate the trend into future. Simply put; they are not fads!
So if you haven’t already added them to your watchlist, do so now. These are, hands down, some of the best Silicon Valley stocks to watch in 2017.