When it comes to stocks, we like playing the long game: picking solid companies, sticking with them through tough times and hanging on for years, even a decade or more. Investing for the long haul can smooth out the risks of buying individual stocks, which may tumble or stay depressed for ages before taking off.
The following three technology companies possess attractive long-range prospects: Each should be able to expand its sales and profits at rates well above the market average for years. (Read 10 Great Stocks for the Next 10 Years to learn about seven more picks outside the tech sector.)
Investing for the next decade doesn't mean you can buy these stocks then forget about them. You'll need to follow them closely and may have to sell if cracks emerge in the business. Still, if these tech companies can keep building on their recent successes, they have a good shot at delivering superb returns over the long run.
Share price: $98.79
Market capitalization: $49.2 billion
52-week high/low: $71.27 - $104.16
Estimated earnings per share for the fiscal year ending in November 2016: $2.87
Estimated earnings per share for the fiscal year ending in November 2017: $3.81
Price-earnings ratio: 30
Dividend yield: none
The business: Adobe sells software, such as Photoshop, used by consumers and businesses for graphic design and digital imaging, along with cloud-based services and digital marketing tools.
What will drive growth: Creative types in advertising, media and other fields rely heavily on Adobe software, which faces scant competition in its niche. The firm is also making inroads into web analytics and digital marketing services, and it's migrating customers to a subscription model for its "Creative Cloud" suite of software products, creating a long and steady revenue stream.
The stock: At 30 times estimated profits, the stock isn't cheap. But Adobe is growing rapidly. Wall Street analysts see sales climbing 22%, to $7 billion, in the fiscal year that ends in November 2017. Profits should increase even faster, rising by 33%, a rate of growth that makes the high price-earnings ratio palatable, says brokerage firm Canaccord Genuity. Although the firm doesn't see big share-price gains over the near term, Adobe has "the ingredients for an exceptional long-term investment," Canaccord says.
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Cognizant Technology Solutions
The business: Cognizant provides information-technology consulting services, overseeing complex software projects for large companies.
What will drive growth: Global demand for IT services is climbing at an annual pace of 4.6%, according to research firm Gartner. But Cognizant is likely to boost sales at double that rate. Financial and health care companies--its core market--are hiring Cognizant to oversee software development in areas such as social media, mobile technology and cloud-based computing. The firm outsources much of that work to India. But it forges close ties to clients, maintaining about 30% of a project's senior staff on site. Those relationships tend to result in contracts that run longer and are more lucrative than those won by most other IT outsourcing firms, says Morningstar analyst Andrew Lange. Analysts estimate that Cognizant will collect $13.6 billion in revenues in 2016, 32% more than the company generated in 2014. Wall Street analysts expect revenues and profits to rise by more than 10% a year through 2018.
The stock: At 15 times estimated earnings, the shares look cheap, says S&P Global Market Intelligence analyst David Holt. Rating the stock a "buy," he sees it hitting $67 in a year.
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Share price: $73.82
Market capitalization: $50.1 billion
52-week high/low: $84.48 - $52.60
Estimated earnings per share for the fiscal year ending in January 2017: $0.95
Estimated earnings per share for the fiscal year ending in January 2018 $1.27
Price-earnings ratio: 63
Dividend yield: none
The business: Salesforce sells web-based software that helps companies generate and manage sales.
What will drive growth: Already a powerhouse in subscription-based, online "software-as-a-service" for big businesses, Salesforce is broadening its product lineup and pushing into areas such as data analytics and digital marketing. It's also making acquisitions to fuel its expansion, such as a recent deal to buy e-commerce company Demandware for $2.8 billion. Wall Street expects revenues to top $10.1 billion in the fiscal year that ends in January 2018, up from an expected $8.3 billion in the prior year. Over the next decade, sales should climb by an average 12% a year, says Morningstar.
The stock: Salesforce's shares have been scintillating, soaring more than 11-fold since February 2009. That kind of appreciation isn't sustainable, especially with the stock trading at 63 times estimated year-ahead profits. Nonetheless, Bank of America Merrill Lynch expects the shares to hit $100 over the next year. By 2020, the bank figures, Salesforce could double annual revenues. If the company can achieve that feat, its stock price would likely double by then, too.
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