3 Tech Stocks to Own in the Next 6 Months
Technology stocks, specifically software names, have rebounded impressively from the tech selloff, delivering 9% and 13% returns in the respective one month and three months, according to Fidelity. Investors are recognizing that the accelerated shift towards work-from-anywhere is not going away. Or at worse, a hybrid combination (in-office and remote) will exist once the country is beyond the pandemic.
As such, investors who placed massive bets in areas such as e-commerce and on the companies that enable remote work and learn-from-home have done well. The Nasdaq Composite Index (IXIC) is about to end the first half of the year in record territory. Finding value with downside risk on your hard-earned cash will be harder in the second half of the year. But it’s not impossible. Depending on one’s risk tolerance and level of patience, earning a “decent” return in the next six months doesn't have to be a challenging endeavor.
By “decent” I mean double-digit gains or just beating, say, the S&P 500 index, which is up 14% year to date. The contrarian view would be to sell the first-half’s winners and bet on the stocks that under-performed. However, I believe in sticking with the person you brought to the dance. In this case, I’m of the opinion that the winners will continue to win. These top-performers will continue to flow more and more into our everyday lives as we rely more on their products and services. In that vein, these three first-half winners, not in any particular order, should be stashed in your portfolio for the second half of the year.
CRWD is up 20% in 2021 and has a 6-month target of $275. Driven by the massive enterprise shift to work-from-anywhere, cybersecurity has been one of the fastest rising segments within the software sector over the past year. That is, until the recent selloff in tech brought the sector back down to earth. Still, even as corporations return to some normalcy, it’s hard to imagine a scenario where cybersecurity won’t be a critical part of enterprise spending in a post-pandemic world. The need for better security as companies continue to adopt digitalization, while making cybersecurity a top operational priority, is set to continue.
Currently worth $200 billion, the market is projected to grow with around 10% compound annual growth rate within the decade. As such, it would be a mistake to part with CrowdStrike, which features, among others, cloud-based endpoints protection application that leverages not only data from machine learning, but also artificial intelligence. Aside from a surge in new customer acquisitions, CrowdStrike continues to find ways to get its existing customers to add more features and functionality. As such, investors should view any pullback as a buying opportunity. Aside from security and vulnerability management, CrowdStrike has begun to scale its capabilities in managed security services and corporate endpoint security to penetrate into the untapped market.
DocuSign is up 25% in 2021 and has a 6-month target of $300. The digital signature company, which provides individuals and businesses the ability to digitize an agreement process, has been on the main beneficiaries during the enterprise shift to remote work during the pandemic. Boasting hundreds of millions of users, with more than 700,000 paying customers, the company has enjoyed rapid growth. According to some estimates, the electronic signature market is now at $25 billion and projected to grow at double-digit percentage rates in the years ahead. This puts DocuSign’s total addressable market, including its SaaS platform, at around $50 billion.
With an estimated 70% market share of the eSignature industry, DocuSign is the clear-cut leader. Aside from being the leader in electronic signatures, DocuSign aims to service the entire deal process, including supporting any action that is required once the agreements have been signed. However, as vaccines become more widely available, the market has grown concerned about DocuSign’s ability to sustain its growth rate. But the management continues to work towards diversifying the company’s other products, such as its contract lifecycle management platform, which is seen as a strong growth candidate in the years ahead. As such, it would be a mistake to part with this winner now, as I think the company has tons of room to expand and grow within existing customers.
Roku is up 30% in 2021 and has a 6-month target of $475. The textbook definition of a stay-at-home stock, Roku has enjoyed rapid revenue and account growth, driven not only by pandemic-induced lockdown periods, but also from the arrival of new streaming services. Aside from the arrival of Apple’s (AAPL) Apple TV+ and Disney’s (DIS) Disney+ platform, the company has also recently reached an agreement with Comcast’s (CMCSA) Peacock and AT&T’s (T) HBOMax, making it available on both platforms. The combined rise on streaming services is poised to expand Roku’s platform as more households continue to cancel cable and satellite services.
What’s more, Roku is also benefiting from a rising trend in advertising dollars that is shifting away from linear television to streaming. Roku management has also begun to target not only new revenue streams, but also ways to penetrate international markets. Analysts have applauded these moves that are aimed at unlocking years of consistent growth in the number of active accounts, which is now well above 50 million. Just as important, Roku’s profit margins and average revenue per user are also expanding. While all of this good news seems already priced into the shares, I continue to expect significant upside from Roku in 2021, driven by its advertising dominance.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.