Large-Cap Tech Stocks Poised for Huge Growth
The lazy days of summer may be here but that doesn’t mean investors should turn their backs on the stock market. Admittedly, the stock market tends to be quiet between May and August. That being said, there are a number of excellent large-cap tech stocks that, instead of selling in May and going away, you could hold and reap the rewards.
The adage “sell in May and go away” has never been more poignant. The stock market is overvalued, we’re in an earnings recession, and trading volume is light. Sure, the S&P 500 is flirting with a new record-high, but that’s all it’s doing—flirting. With nothing to lift stocks higher in a meaningful way, investors are just left frustrated.
When it comes to investing in the summer, investors have good reason to be wary. Since 1950, the S&P 500 has returned, on average, a princely one percent in the May-August period.
However, tech stocks don’t always follow the broader trends. Take, for example, the last three years; between May and August 2013, the iShares Dow Jones US Technology (ETF) (NYSEARCA:IYW) climbed 4.6%—the broader S&P 500 was up just 2.1%. During the same period in 2014, IYW jumped 12.67%, while the S&P 500 saw a respectable 6.3% increase. And last year, the IYW slipped 6.3%, while the S&P 500 followed in step, losing 5.5% of its value.
So, averages, while important, can be a little deceiving and proof that it’s not always worth ditching tech stocks in the summer, especially large-cap tech stocks, many of which continue to churn out solid earnings and revenue growth.
In a volatile year like 2016, where the markets, while flat, have been on a roller-coaster ride since January, it’s also important to look for large-cap tech stocks that provide big dividends. This makes it easier to stomach the short-term volatility.
The following are three examples of the kinds of large-cap tech stocks that are worth adding to your radar this summer.
1. QUALCOMM, Inc.
QUALCOMM, Inc.’s (NASDAQ:QCOM) performance since 2014 has been pretty disappointing. Between July 2014 and February 2016, the company’s share price tumbled 45% to around $22.00 per share. But Qualcomm has been doing well since bottoming in February and is currently up around 10% year-to-date, making it one of the best-performing tech stocks in 2016.
The wireless communications company reported stronger-than-expected second-quarter results, with net income climbing 11% year-over-year to $1.2 billion, or $0.78 per share. It also continued its long history of generating cash with $30.0 billion at the end of the second quarter. (Source: “Qualcomm Announces Second Quarter Fiscal 2016 Results,” QUALCOMM, Inc., April 20, 2016.)
This strong cash position helps the company maintain a big annual dividend of 3.97% or $2.12 per share. Back in March, the company announced a 10% increase in its quarterly dividend from $0.48 to $0.53 per share. (Source: “Qualcomm Increases Quarterly Dividend by 10 Percent,” QUALCOMM, Inc., March 8, 2016.)
Of particular note, Qualcomm has raised its annual dividend for the last 14 consecutive years. The company’s stock may go through predictable short-term cycles, but at least investors have been able to rely on the company to reward long-term tech stock investors with dividend growth.
International Business Machines Corp. (NYSE:IBM) has been bucking the lethargy trend in 2016.
The company’s share price is up 14% since the start of the year and continues to have great momentum. Back in April, the company’s 50-day moving average crossed over its 200-day moving average, creating a golden cross pattern on the stock’s chart. The golden cross reinforces the bullish trend.
As the world’s top provider of computer products and services, IBM is a leader in almost every market it serves. This makes it easy for some investors to hold IBM and not pay attention to it during the summer months. The company isn’t going anywhere and continues to have incredible long-term growth potential.
That’s what we’re looking at—long-term growth and short-term reliability. IBM may have reported its worst revenue in 14 years in the first quarter, but the company has been trimming its traditional hardware business and concentrating more on a strategic imperative, such as cloud, analytics, and engagement.
In these areas, revenue increased 14% year-over-year, accounting for 37% of the company’s overall revenue. Cloud revenue was up 34% at $10.8 billion, revenue for analytics increased seven percent, revenue from mobile increased 88%, and security revenue was up 18%. (Source: “IBM Reports 2016 First-Quarter Earnings,” International Business Machines Corp., April 18, 2016.)
During the first quarter, IBM generated free cash flow of $2.3 billion (excluding global financing receivables)—a $1.2-billion increase year-over-year. The company also returned $1.2 billion in dividends and $0.9 billion of gross share repurchases to shareholders.
For income-starved investors, IBM’s 3.71% ($5.60 per share) annual dividend, which it has raised for the last 21 years, is one of the best tech stocks in the sector.
3. Facebook Inc
One-and-a-half billion subscribers can’t be wrong.
Even if they are, that massive audience is helping drive Facebook Inc’s (NASDAQ:FB) share price considerably higher and that’s the main point. In fact, they’ve helped the company’s share price climb 11% year-to-date.
Since stumbling after its initial public offering, Facebook has been one of the best-performing tech stocks out there. Since the start of 2013, Facebook’s share price has, for the most part, climbed steadily higher, rising 315%. That makes up for the company not providing a dividend.
In late April, Facebook announced first-quarter revenue soared 52% year-over-year to $5.3 billion; excluding the impact of foreign exchange rates, total revenue would have advanced 58%. Advertising revenue was up 57% at $5.21 billion; excluding the impact of foreign exchange rates, advertising revenue would have been up 63%. Net income was up an impressive 195% at $1.5 billion, or $0.52 per share. (Source: “Facebook Reports First Quarter 2016 Results,” Facebook Inc, April 28, 2016.)
These kinds of numbers might explain why only one percent of investors are shorting Facebook. And even then, that one percent may not have made the best move.