"Any sufficiently advanced technology is indistinguishable
from magic," British author and futurist Sir Arthur Clarke once
observed. If that's the case, there's plenty of magic in today's
wired world, from smart phones that can tell jokes to machines
that can tell you why they're malfunctioning. As these
technologies turn into necessities, tech stocks can turn out to
be surprisingly magical, too. "It's a great sector to invest in,"
says Bernie Williams, chief investment officer of USAA's
money-management division. "It's got something for everyone."
Whether you're looking for steady dividends from an
established giant such as Apple or Microsoft or wanting to place
a bet on a fast-growing upstart, opportunities abound. Here are
eight stocks worth a look. (The stocks are listed in order of
Headquarters: Cupertino, Calif.
Market capitalization: $568.3 billion
52-week range: $55.55 - $95.05
Annual sales: $176.0 billion
Estimated earnings growth: 11.1% in the fiscal year that ends
in September 2014; 8.9% in the year that ends in September
The death of Steve Jobs, Apple's CEO and creative genius, in
October 2011 set investors on edge. When Apple's profits slumped
last year, Wall Street thought its worst expectations had been
) went into a tailspin. But with new iPhone models out and more
coming, revenues and earnings are climbing again. Apple's leaders
are notoriously tight-lipped about product launches, but Jobs's
successor as CEO, Tim Cook, has been hinting that new
products--including, perhaps, an iWatch--are in the offing.
Meanwhile, Apple has been boosting its dividend and buying back
billions of dollars worth of its stock. Moreover, on June 9,
Apple executed a seven-for-one stock split, its first split since
February 2005. Splits have no impact on the value of investors'
holdings or on measures of a stock's value. But companies
generally split their stocks when their executives are optimistic
about the future. Apple shares sell for 14 times projected
earnings and yield 2.0%.
Headquarters: Redmond, Wash.
Market capitalization: $339.6 billion
52-week range: $30.84 - $41.66
Annual sales: $83.3 billion
Estimated earnings growth: 6.5% in the fiscal year that ends
in June 2015; 9.8% in the year that ends in June 2016
Change has been good for Microsoft (
) shareholders. The stock has climbed 15% since February 4, when
the company announced that Microsoft veteran Satya Nadella would
replace longtime CEO Steve Ballmer. Nadella, who previously ran
the firm's cloud and enterprise group, has promised that under
his leadership Microsoft will revive the innovative spirit that
put the company on the map. UBS Securities analyst Brent Thill is
particularly encouraged by the fact that Nadella has been
"refreshingly non-committal" about continuing to spend money on
costly operations that have failed to win significant market
share--a problem that has weighed on Microsoft's earnings over
the past decade. By cutting costs, Thill says, Microsoft will be
able to significantly boost profits. The shares sell for 15 times
projected earnings and boast an above-average dividend yield of
Headquarters: Redwood City, Calif.
Share price: $42.66
Market capitalization: $190.3 billion
52-week range: $29.86 - $42.88
Annual sales: $37.9 billion
Estimated earnings growth: 9.7% in the fiscal year that ends
in May 2015; 8.3% in the year that ends in May 2016
Wall Street had been treating software giant Oracle (
) as if it was a bit too long in the tooth. True, cloud-based
competitors have gained steam on the 37-year-old specialist in
database-management programs, and Oracle's growth turned tepid.
However, it's way too early to write off Oracle, says Mark
Landecker, co-manager of the FPA Crescent fund. Given the nature
of Oracle's business model, customers stick with the company;
about 90% re-up every year. Now that Oracle is making its own
inroads into the cloud, profits should perk up, analysts say.
Meanwhile, Oracle is sitting on $34 billion in cash, which it has
been using to buy back stock. And although the stock has gained
29% over the past year, it is not especially pricey, selling for
14 times estimated earnings.
Headquarters: Eindhoven, Netherlands
Market capitalization: $16.2 billion
52-week range: $29.03 - $64.69
Annual sales: $5.0 billion
Estimated earnings growth: 33.7% in December 2014; 14.1% in
You may not be aware of it, but you're as likely to be using
products made by NXP Semiconductors (
) as you are to use Microsoft's Office or Apple's iPhone. That's
because NXP makes a wide array of components that go into
everything from smart phones and smart credit cards to
automobiles and environmentally friendly light bulbs. The company
says big trends that demand better security and energy efficiency
in an increasingly interconnected world are driving its profits.
USAA's Williams notes that NXP makes the chips for smart credit
cards, which should see rapid growth in the wake of credit-card
data breaches at Target and other companies. NXP also sells chips
that go into cell phones, allowing consumers to buy products by
merely waving a phone at the cash register. For a company that's
expected to generate 30% earnings growth this year, NXP shares
look unusually cheap at 14 times projected earnings.
Headquarters: Pleasanton, Calif.
Market capitalization: $14.6 billion
52-week range: $59.87 - $116.47
Annual sales: $468.9 million
Estimated earnings growth: Not meaningful (company is losing
The case for Workday (
) is based on a promising future, not on current profits, of
which there are none. Workday is a consulting firm that helps
companies manage their human resources and finance departments.
But unlike most human-resources software companies that sell
expensive corporatewide systems that must be periodically
updated, Workday's software is sold on an as-needed basis and is
constantly updated through the cloud technology that delivers it.
That makes the software more affordable and user-friendly.
Workday's revenues have been growing at a blistering pace;
analysts see them soaring 60% in the fiscal year that ends in
January 2015 and 46% the following year. The company's first
profits aren't expected until sometime in 2017. That makes the
stock more speculative than most on this list. That said, the
stock is a better bet today than it was in February, when it was
selling at $115. The fall was simply due to a shift in the
market's mood, says Steve Ashley, an analyst with Robert W. Baird
& Co. He thinks the stock will hit $95 within a year.
Headquarters: Santa Clara, Calif.
Market capitalization: $8.0 billion
52-week range: $35.90 - $71.80
Annual sales: $477.8 million
Estimated earnings growth: Not meaningful (the company is
What Workday does for human-resources management, ServiceNow (
) does for the information-technology department. Baird & Co.
analyst Ashley thinks the company's software is game-changing.
It's able to consolidate fragmented and redundant systems and
allow for better tracking of performance and prioritization of
work. Better yet, it can do all that at a lower cost than
traditional IT software. As with Workday, ServiceNow is
delivering astounding revenue gains--analysts estimate 54% growth
this year--and the company is expected to deliver its first
quarterly profit in the July-September period. Profits have not
yet materialized, but analysts believe ServiceNow will break into
the black next year. After that, profits are expected to grow
rapidly. But the stock sells at a pricey 107 times estimated 2016
earnings, so if you buy the stock, be prepared for a wild ride.
As with Workday's stock, ServiceNow shares took a hit in March,
when investors got skittish about high valuations for growth
stocks. But Ashley thinks ServiceNow will recover to $65 within a
Headquarters: San Francisco
Market capitalization: $5.1 billion
52-week range: $39.35 - $106.15
Annual sales: $302.6 million
Estimated earnings growth: Not meaningful (company is losing
Named after a sport that involves digging through caves,
) dives into the vast and often murky performance data produced
by corporate machinery. By capturing the incessant clamor of
machine error messages and electronically sorting through and
identifying the ones that are meaningful, Splunk's software
effectively gets corporate machinery to tell their owners when
something is broken. That has drastically reduced the time it
takes to find and fix system errors, says Derrick Wood, an
analyst with Susquehanna Financial Group. And it has made Splunk
one of the hottest properties on Wall Street. The company is now
using its technological know-how to figure out when hackers are
trying to attack its customers' computer networks. Splunk "has
fantastic technology that helps customers solve real problems,"
says Morningstar analyst Norman Young. Like many of the other hot
upstarts, Splunk is not yet profitable, but analysts expect the
company to produce black ink in the quarter that ends in October
2014. Splunk shares have fallen 57% since late February. Although
Young thinks the stock is worth $54, he suggests that investors
wait for the shares to fall into the $30s before pouncing.
Headquarters: Westford, Mass.
Market capitalization: $1.7 billion
52-week range: $22.71 - $41.86
Annual sales: $396.6 million
Estimated earnings growth: 16.0% in the fiscal year that ends
in March 2015; 15.4% in the year that ends in March 2016
At 23 times estimated earnings, NetScout (
) is a bit more expensive than the tech behemoths but nowhere
near as pricey as the upstarts. NetScout provides software and
services that allow a customer to detect technical problems by
watching how traffic progresses through its computer network. For
years, NetScout's primary service alerted corporate tech
administrators to errors and glitches with servers, switches and
software. Last year, NetScout introduced a product that helps
companies enhance network performance--not just detect problems.
The company also started using its data analytics recently to
find cyber-criminals attempting to scale corporate firewalls.
Matt Robison, an analyst with Wunderlich Securities, thinks this
winning combination of products and services will help fuel
steady double-digit-percentage earnings growth. NetScout's shares
took a mild hit during the growth-stock selloff in March and
early April, but they now trade at record highs.