Channel Your Inner Warren Buffett and Invest in Tech Stocks

Published April 24th, 2017 - 11:20 GMT
One thing is obvious: in today's technology-driven world, the best bets would be companies that are involved in the tech sector. (Pixabay)
One thing is obvious: in today's technology-driven world, the best bets would be companies that are involved in the tech sector. (Pixabay)

Stock trading. What is a simple task for some is a complexity for others. Or, as $73.6-billion-man Warren Buffett puts it in a nutshell, "it's far better to buy a wonderful company at a fair price than a fair company at a wonderful price".

Let that sink in and figure out if you're confused now.

The rule is simple: it's not easy to invest in shares, because you'll never know the fate that will befall companies. But if you just observe and keep watch, you might get some hints on which stocks are the best bets for your precious cash.

In any case, one thing is obvious: in today's technology-driven world, the best bets - naturally speaking - would be companies that are involved in the sector. The tech-heavy Nasdaq Composite Index has made it a hobby of closing out trading sessions at record highs in 2017, with Thursday's close the 22nd time this year it's hit a new pinnacle.

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For perspective, as at April 21, of the top 10 companies on the Dow with the highest market capitalisation, six - Apple, Alphabet, Microsoft, Amazon.com, Facebook and Alibaba Group - are in the technology sector. And guess what, the first five listed are the actual top five, and their combined cap is a staggering $2.697 trillion - bigger than the United Kingdom's GDP in 2016.

On January 12, 2007 - three days after the original iPhone was unveiled - Apple's share price was $13.52. Today, it's $142.27, a 952 per cent zoom. Buffett - who has doubled his stock at One Infinite Loop - pegged a price target of $1 trillion, a once-unthinkable prospect.

Facebook, on the other hand, went public on May 18, 2012, with a share price of $38.23. At present, it's at $143.68, a 276 per cent rise. Alphabet - the tech artist formerly known as Google - was at $54.21 on August 20, 2004 and is now at $858.95, a 1,484 per cent leap.

Meanwhile, Microsoft, another once-dominant player on its court, hasn't moved that much; it was $58.72 on December 23, 1999, and today it's up a humble 13.72 per cent at $66.40. To be fair, it has bounced back strongly from its most recent low of $15.28 on March 6, 2009.

Of course, not all tech shares are actually attractive. Case in point: Yahoo. What once was the Internet giant ran into all sorts of trouble; at its peak, its share price on December 31, 1999, was $108.17. Today, it's plunged 56 per cent lower to $47.52. (Adjusted for inflation, the 1999 figure amounts to $159.35 in today's dollars.) And Sony has seen its stock dive from $197.14 on March 3, 2000, to $32.93 at present, an 83 per cent tumble.

Simply put, if for example you invested in any of those stocks above since Day One, your money has increased or decreased by the percentages mentioned.

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And it's understandable because of the trends: Alphabet has steadily risen because of the Internet and its services, plus mobile devices because of its Android platform, Facebook - along with other social media firms - is very attractive because of the explosion of the medium and Apple is, well, Apple.

A good strategy is to "look for technologies that clearly affect the user experience" in order to gauge a stock's possible performance, technology share investor and The Motley Fool writer Ashraf Eassa says.

"There are examples of companies with rare and differentiated technologies and whose technologies offer high barriers to entry that still manage to lose business and share," he writes.

He cites Qualcomm as an example: while the US firm has indeed rare and differentiated tech with its cellular modems that very companies can build, it still lost share to Intel thanks to Apple's decision to integrate the latter's chip on the iPhone 7.

This happened last year; Qualcomm peaked at $70.09 on October 27, 2016, but today's it's down to $52.50. Intel, meanwhile, went from $33.61 to $36.32 in the comparable period, reaching a high of $37.98 on January 27. (Qualcomm went on to sue Apple earlier this month, accusing it of making its chips underperform so it could apparently move on with Intel.)

Analysts have given their top technology picks for 2017, and it's no surprise that it's peppered with tech firms. Barron's' bets include Apple and Alphabet, Deutsche Bank says Alibaba is this year's best for Internet shares, Merrill Lynch sees a 50 per cent upside to Amazon.com. Chip-maker Nvidia - best known for its graphics cards for computers - was added by Goldman Sachs to its buy list, owing to its 200 per cent share price rise from early 2016 to the beginning of this year. And Trading Analysis sees Facebook hitting new highs this year, with its stock up about 25 per cent so far in 2017.

But of course, there are gems waiting to be unearthed.

"While the most popular plays have rallied into lofty levels that could trigger sizeable second-quarter pullbacks, secondary tech names could gain traction as market players take profits and look for lower-risk buying opportunities," Hard Right Edge publisher Alan Farley says on Investopedia.

He lists three sectors to look out for: fibre optics, semiconductors and software providers "look like sweet spots in the hunt for second-quarter tech winners but it's hard to make bad choices because the rising market has been floating all boats".

The first - fibre optics - is also a buying opportunity for 24/7 Wall Street's Lee Jackson.

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"The fact that everything runs faster through fibre optics has been known for years, and is hardly a big secret," he says. "The reality is fibre connectivity is now fast becoming the growth driver as demand for latency and storage has increased with huge increases in cloud computing and storage, streaming content and data, and much more."

Ergo, the future looks "incredibly bright for the top companies in the arena".

So if you want those potential mega-bucks, do your homework first. And once you've decided, remember another thought from Buffett for some inspiration for the wild ride ahead: price is what you pay; value is what you get.

By Alvin R. Cabral


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