Tech Stock Analysis: Top Tech Trends for 2019; Part 2
Tech Trends for 2019, Continued
In the first part of my two-part series “Tech Stock Analysis: Top Tech Trends for 2019,” I started exploring some of the biggest tech stock trends for 2019.
So far, I’ve covered the artificial intelligence (AI) and cloud computing sectors and looked at specific trending tech stocks within those sectors.
Today, I’m profiling the cybersecurity and biotech industries, plus taking a look at what’s ahead for the “FAANG” stocks, which have been dominating the market for the last few years.
Two More Tech Industries That Could Boom in 2019
Cybersecurity Industry: Best Cybersecurity Stocks for 2019
It’s virtually impossible to go a day without hearing about a critical data breach. The most recent whopper was the Equifax Inc. (NYSE:EFX) scandal back in 2017, in which cybercriminals got their hands on the personal data of 145.5 million customers in the United States.
They’re certainly not alone. Under Armour Inc (NYSE:UAA), Whole Foods Market Inc, and Uber Technologies, Inc. have all been hit with cyber attacks over the years. More recently, NASA revealed that hackers were able to get into one of its servers, gaining access to the personal data of current and former employees.
The rise in cyber attacks and the demand for cybersecurity protection has been a boon for cybersecurity stocks.
Palo Alto Networks
Palo Alto Networks Inc (NYSE:PANW) is the global leader in cybersecurity. The Santa Clara, California-based tech company has more than 54,000 customers in over 150 countries. (Source: “About Palo Alto Networks,” Palo Alto Networks Inc, last accessed January 2, 2019.)
More than 85 of the Fortune 100 companies and more than 63% of the Global 2000 companies rely on Palo Alto’s cybersecurity platforms.
In September 2018, Palo Alto announced that revenue for its fiscal-year 2018 increased 29% year-over-year to $2.3 billion and billings grew 25% year-over-year to $2.9 billion. (Source: “Palo Alto Networks Reports Fiscal Fourth Quarter and Fiscal Year 2018 Financial Results,” Palo Alto Networks Inc, September 6, 2018.)
Fiscal-year 2019 is also starting out strong.
The company’s revenue for first-quarter 2019 increased 31% year-over-year to $656.0 million. Its billings in the same period grew 27 percent year-over-year to $758.5 million. (Source: “Palo Alto Networks Reports Fiscal First Quarter 2019 Financial Results,” Palo Alto Networks Inc, November 29, 2018.)
Fortinet
Fortinet Inc (NASDAQ:FTNT) is a big cybersecurity company with more than 375,000 customers. Based on annual unit shipments, Fortinet provides the No. 1 most deployed network security solution. (Source: “The Fortinet Security Fabric,” Fortinet Inc, last accessed January 2, 2019.)
Fortinet is also the only cybersecurity company to excel at all four key stages of network security: detection; prevention & remediation; integration; and performance & value.
Despite stiff competition, Fortinet continues to report strong, double-digit revenue growth.
In its third-quarter 2018 earnings report, the Sunnyvale, California-based company announced that its revenue increased 21% year-over-year to $453.9 million. (Source: “Fortinet Reports Third Quarter 2018 Financial Results,” Fortinet Inc, November 1, 2018.)
Despite the October 2018 stock market sell-off, Fortinet stock is still trading up about 60% year-to-date.
CyberArk Software
CyberArk Software Ltd (NASDAQ:CYBR) develops and sells cybersecurity software to over 4,200 customers in 90 countries. (Source: “Why CyberArk?” CyberArk Software Ltd, last accessed January 2, 2019.)
The company counts half of the Fortune 500 companies and more than 30% of the Global 2000 companies as its customers. This includes 21 of the top 25 banks, 22 of the top 25 IT services companies, and 20 of the top 25 manufacturing firms.
CyberArk is the smallest of the three cybersecurity stocks, with a market cap of $2.7 billion, compared to $17.9 billion for Palo Alto Networks and $11.9 billion for Fortinet, but it’s been posting strong financials.
On November 7, 2018, CyberArk announced strong financial results for its third quarter. Total revenue was up 31% year-over-year, at a record $84.7 million. (Source: “CyberArk Announces Strong Third Quarter 2018 Results,” CyberArk Software Ltd, last accessed November 7, 2018.)
Total revenue for the fourth quarter is expected to be in the range of $94.8–$96.3 million, which would be a year-over-year increase of 18%–20%. Total revenue for fiscal 2018 is expected to be in the range of $328.9–$330.4 million, which would be a year-over-year increase of 26%.
Biotech Industry: Best Biotech Stocks for 2019
Biotech stocks can be risky, with share prices rising or falling on positive and negative test results, and whether a drug has been approved or rejected by the U.S. Food and Drug Administration (FDA).
That said, the biotech industry was facing headwinds during much of 2018, on concerns about whether President Donald Trump would be able to dismantle Obamacare. There were also worries that Trump’s plan to cut drug prices would make its way through Congress.
But the results of the November 2018 midterm elections have put both of those concerns to rest, at least for now. It’s tough to say the entire biotech industry looks bullish for 2019, but there are a large number of biotech stocks that look healthy.
Abbott Laboratories
Abbott Laboratories (NYSE:ABT) had a strong year in 2018; its share price is up about 20% year-to-date. Despite the strong momentum, Abbot still has plenty of room to run in 2019.
Abbott isn’t an under-the-radar stock; it’s a blue-chip healthcare company with a strong, revenue-generating pipeline of products and many highly anticipated products in various stages of development.
Abbott is ranked No. 1 for blood and plasma screening, adult nutrition, pediatric nutrition, heart pumps, remote heat failure monitoring, point of care testing, and chronic pain devices. (Source: “Fact Sheet,” Abbott Laboratories, last accessed January 2, 2019.)
Thanks to the company’s strong product pipeline, in its third quarter, Abbott was able to add to its more than decade-long streak of meeting or beating Wall Street expectations. The company delivered strong sales and earnings per share (EPS) growth.
Third-quarter global sales advanced 12.1% to $7.7 billion while net income came in at $563.0 million. (Source: “Abbott Reports Third Quarter 2018 Results,” Abbott Laboratories, October 17, 2018.)
AbbVie Inc
AbbVie Inc (NYSE:ABBV) is a research and development-based biopharmaceutical company that operates in four therapeutic areas: oncology, virology, immunology, and neuroscience. It was spun off from Abbott Laboratories in 2013.
The company’s most popular (and the world’s best-selling) drug is “Humira,” which treats pain and inflammation caused by rheumatoid arthritis, chronic plaque psoriasis, and Crohn’s disease.
There had been concerns that the drug maker would lose the U.S. patent for Humira, but it attached additional patents to the drug, giving it U.S. patent protection through 2023.
“Imbruvica,” its other flagship drug, which is used to treat cancers such as lymphoma and leukemia, has also been selling well. It posted double-digit revenue growth and exceeded expectations.
In the company’s recently completed third quarter, AbbVie announced that worldwide revenue was up 17.8% year-over-year, at $8.2 billion. Global Humira sales were up nine percent while Imbruvica sales advanced 41.3%. (Source: “AbbVie Reports Third-Quarter 2018 Financial Results,” AbbVie Inc, November 2, 2018.)
AbbVie also provides an annual dividend of five percent. Since the company’s inception in 2013, AbbVie has increased its annual dividend by 140%.
Amarin
Amarin Corporation plc (NASDAQ:AMRN) is a biotech company that develops therapies to treat cardiovascular diseases. The Dublin, Ireland-based company had a pretty stellar 2018; its share price is up about 270%.
Despite its strong gains in 2018, analysts think the stock could more than double in 2019.
“Vascepa,” which is used to help reduce triglyceride levels in adult patients with severe hypertriglyceridemia, is Amarin’s first FDA-approved drug.
In September 2018, Amarin presented top-line test results for Vascepa. No other omega 3 supplement has reported such a massive benefit in a large, double-blind, placebo-controlled study. (Source: “Reduce-It Cardiovascular Outcomes Study of Vascepa (Icosapent Ethyl) Capsules Met Primary Endpoint,” Amarin Corporation plc, September 24, 2018.)
Amarin is looking to expand internationally; it currently has commercial partners looking for regulatory approvals in Canada, China, and the Middle East.
Amarin’s management team believes that Vascepa’s sales will eventually top $2.0 billion annually. That’s a big sum for a company that is expected to report full-year revenue for 2018 in the range of about $220.0 million.
The second half of 2019 could be very interesting for Amarin.
FAANG Stock Forecast for 2019
The so-called FAANG stocks—Facebook, Inc. (NASDAQ:FB), Apple Inc. (NASDAQ:AAPL), Amazon.com, Inc. (NASDAQ:AMZN), Netflix, Inc. (NASDAQ:NFLX), and Google (otherwise known as Alphabet Inc (NASDAQ:GOOG))—have been fueling the rising stock market for years.
Those tried and true tech stocks showed their vulnerability in 2018. They did well in the first half of that year, but the second half was a little more volatile. For some FAANG stocks, 2019 could be even worse.
The 2018 performance of FB stock (black line), AAPL stock (green line), AMZN stock (purple line), NFLX stock (orange line), and GOOG stock (yellow line) can be seen on the stock chart below.
Chart courtesy of StockCharts.com
Analysts have been saying that the technology sector is overvalued and was due for a correction of sorts. There are also headwinds that could prevent the FAANG stocks from rebounding as quickly as some think they ought to.
For the last number of years, FAANG stocks have enjoyed a climate of strong economic growth and ultra-low interest rates, both of which helped fuel earnings. Both of those ingredients are in jeopardy. Growth is slowing and interest rates are on the rise.
A growing number of analysts believe there’s a good chance the U.S. will enter a recession in 2019. If so, that will lead to a decline in earnings. Even without a recession, a slowing economy and rising rates will have a similar effect.
Facebook has already warned about its full-year growth while Amazon and Alphabet missed on their most recent earnings estimates.
There are concerns that demand for Apple’s newest “iPhones” will lead to significantly lower sales. A reduction in the headcount at Apple suggests the company needs to start cutting costs.
Netflix reported strong third-quarter earnings, but the media company quickly learned that ethics may be more important than earnings.
According to a report in The New York Times, Facebook gave Netflix, Spotify Technology SA (NYSE: SPOT), and other big tech companies access to users’ private messages. (Source: “As Facebook Raised a Privacy Wall, It Carved an Opening for Tech Giants,” The New York Times, December 18, 2018.)
Netflix naturally claims it didn’t read, write, or delete users’ private messages, but Facebook documents showed that Netflix did have access to private messages.
Netflix then admitted it did have access to personal messages, but only used them for sending and receiving TV and movie recommendations. (Source: “Netflix Claims It Didn’t Access Your D.M.s; The New York Times Disagrees,” Vanity Fair, December 20, 2018.)
The optics are not good, no matter how you look at it. And 2019 might be the year for once-trusted brands like the FAANG companies to look into embracing the “ethical Internet.”
Sentiment has obviously soured for the FAANG group of stocks, but they are all juggernauts. It’s not as if any of them are going to get destroyed in 2019.
Despite the bad PR, the FAANG stocks will likely recover. How long that takes, though, could have major ramifications for the broader markets. The FAANG stocks are a bellwether for broader market sentiment. If they struggle in 2019, investors could get spooked and Wall Street could take another short-term hit.
