Technology stocks, specifically software names, soared in 2020, delivering 41% returns, according to Fidelity. The accelerated shift towards work-from-anywhere, driven by the pandemic, resulted in breathtaking returns for investors who placed massive bets in areas such as e-commerce, cloud computing and the semiconductor stocks that the aforementioned industries relied on.
With the Nasdaq Composite Index (COMP) ending 2021 close to record territory, finding value and knowing where to place your hard-earned cash in 2022 will be difficult. But it won’t be impossible, depending on one’s risk tolerance and patience. The contrarian view would be to sell 2021’s winners and bet that the country will get back to normal. But we know the pandemic and its supply chain disruptions won’t simply disappear in 2022.
Nevertheless, last year’s winners won’t fade into obscurity either. 2021’s top performers will continue to flow more and more into our everyday lives, affirming our reliance on their products and services. In that vein, these three Nasdaq 2021 winners should be stashed in your portfolio for 2022 and beyond.
Apple (AAPL)
What can be said about Apple that has not already been said? On Monday, the iPhone maker became the first company in history to reach a valuation of $3 trillion. "It's a remarkable milestone that took decades to accomplish," said longtime Silicon Valley analyst Tim Bajarin, of consultancy Creative Strategies. "Apple has other new products in the works that should help it to continue to grow market share and market cap.” As the the pandemic has fueled demand for technologies to enable work-from-home and learn-from-home, Apple has delivered strong revenue growth across all of its major products and services, driven by iPhones, Macs, and iPads.
Calling the $3 trillion milestone a “watershed moment,” Wedbush analyst Dan Ives noted "Being the first company to join the $3 trillion club is a "flex the muscles moment" for [Apple Chief Executive Tim] Cook and company.” Adding, "The company continues to prove the doubters wrong with the renaissance of growth story playing out in Cupertino.” What’s more, the company is now sitting on more than $200 billion in cash and investments. Add in the $104 billion in operating cash flow, Apple’s balance sheet fortifies and de-risks any chance of weakness in the business in 2022.
Microsoft (MSFT)
Microsoft is second only to Apple in Market cap, sitting at $2.5 trillion. Work and learn-from-home trends continue to power more demands for Microsoft services, evidenced by the strong performances in the company’s Productivity and Business and Intelligent Cloud segments over the past two quarters. Wall Street remains broadly positive about the company’s prospects to achieve double-digit revenue growth in fiscal 2022, driven by Azure's momentum and the company’s cloud-centric strategy aiming to bolster its high-margin, fast-growing services. And driven by its massive moats across its core businesses, Microsoft presents an attractive growth opportunity not only in areas such as cloud computing, but also the emerging Metaverse.
What’s more, the company’s fundamentals have never been better. Aside from strong metrics including massive returns on capital and its high margins, Microsoft carries a strong balance sheet with roughly $140 billion in cash reserves and another $82 billion in annual operating cash flow, giving it tons of firepower to scale its business, execute M&A or implement stock buybacks as it sees fit. On top of all of that, Microsoft stock continues to trade at a nice discount to the FAANGs. As such, I expect Microsoft, currently valued at $2.5 trillion, to cruise past the $3 trillion market cap milestone in 2022.
Meta Platforms (FB)
Meta Platforms, formerly known as Facebook, has an average Street price target is just over $400, suggesting around a 20% return. But that seems conservative, given the massive opportunity the company is poised to realize in its investments into the metaverse. Mark Shmulik, internet analyst at Bernstein, said the metaverse is likely to be "really big," with a combined annual run-rate of most markets at $2 trillion and growing. It's likely for this reason CEO Mark Zuckerberg has decided to transition the company away from its singular focus on social networks towards a more immersive idea aimed for the metaverse.
Currently, the company has roughy 3.6 billion people on a monthly basis using one of the company’s services, which include Facebook, Instagram, WhatsApp and Messenger. This figure amounts to more than 70% of the global internet users or about 50% of the global population. The company plans to invest $10 billion into over the next year to advance its met averse ambitions, doubling down on its Oculus VR headset, which some analysts believe give the company a distinct advantage over its competitors. Combined with its $58 billion of cash on the balance sheet and the strong secular growth tailwinds, Meta Platforms will be a stock to watch (and own) in 2022.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
Richard Saintvilus
After having spent 20 years in the IT industry serving in various roles from system administration to network engineer, Richard Saintvilus became a finance writer, covering the investor's view on the premise that everyone deserves a level playing field. His background as an engineer with strong analytical skills helps him provide actionable insights to investors. Saintvilus is a Warren Buffett disciple who bases his investment decisions on the quality of a company's management, its growth prospects, return on equity and other metrics, including price-to-earnings ratios. He employs conservative strategies to increase capital, while keeping a watchful eye on macro-economic events to mitigate downside risk. Saintvilus' work has been featured on CNBC, Yahoo! Finance, MSN Money, Forbes, Motley Fool and numerous other outlets. You can follow him on Twitter at @Richard_STv.
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