In the United States, the five most valuable technology stocks are called FAAMG stocks, or Facebook (FB), Amazon.com (Amazon), Apple (AAPL),Microsoft(Microsoft) And Google parent letters (Gauge).Over the past few years, these stocks have been driving the performance of the S&P 500 index, but Have I think it is best to buy the other four stocks now. Although some investors are aware of these companies, they are not as well known as FAAMG, but they still dominate the industry and provide the potential for strong growth and price increases.
FAAMG is an acronym created by Goldman Sachs for the best-performing technology stocks. Michael O’Rourke of JonesTrading estimates Since the end of 2017, FAAMG stocks accounted for approximately 72% of the performance of the S&P 500 Index. It is undeniable that these companies are fundamentally sound and have strong growth stories. However, some analysts worry that these stocks are similar to technology stocks before the bubble burst in 2000, or Nifty Fifty stocks that fell in the bear market from 1973 to 1974 in the early 1970s.
For these reasons, I want to look for other stocks instead of Big As FAAMG, it still dominates their industry due to its “moat” status and has strong growth potential. Moat stocks are extensive and are companies that have a greater competitive advantage than their competitors. These companies have a sustainable dominant market position, which makes it difficult for companies to enter the market or competitors to challenge them. The following four stocks must meet these criteria: KLA Corporation (Kuala Lumpur), ServiceNow (right now), Salesforce.com (Customer relationship management) And Autodesk (ADSK).
KLA Corporation (Kuala Lumpur)
KLAC designs and manufactures output management, process monitoring and control systems. It dominates the process diagnosis and control (PDC) field of the semiconductor equipment industry. In the semiconductor manufacturing process, wafer defects must be inspected, and as chips become smaller, the demand for PDC tools is increasing. KLAC has more than 50% market share in the PDC market. This and the company’s technical expertise have led to its moat status.
Due to the transition of the entire industry to advanced nodes and the introduction of EUV lithography technology, the company should see continued growth. In addition, with the improvement of wafer cleanliness and geometric specifications in the bare wafer market, the demand for KLAC wafer products is also increasing. The company’s new products include its electron beam platform and an expanding addressable market for printed circuit boards, flat panel displays and packaging, heralding future growth.
KLAC has shown strong sales growth in the past five years, reaching its highest growth of 18.8% last year. I also like its profitability because its return on investment is 22% and return on equity is 45.7%. The company has a healthy short-term cash balance, represented by a current ratio of 2.8. The stock is rated “B” in our rating POWR rating system. The trade grade and industry grade are graded as “A”, and the M&A grade and equivalent grade are graded as “B”.
The stock will release its latest quarterly results on October 28, so please pay close attention to KLAC next week.
ServiceNow (right now)
NOW provides software solutions to build and automate various business processes through the SaaS delivery model. The company mainly focuses on providing IT functions to corporate customers. The stock has very strong growth potential. Its EPS grew by a staggering 1,944.4% last year and is expected to grow by 24.2% next year. Sales are expected to increase by 24.5%. Now, due to high customer switching costs, the state of the moat is extensive. This means that it is more expensive for customers to switch to NOW competitors.
The company is ready to benefit from strong growth in subscription revenue. Due to the widespread adoption of its solutions, NOW has improved its 2020 subscription revenue, billing, gross margin and operating margin guidance. In addition to management’s optimistic estimates, the company should also benefit from companies and government agencies switching their infrastructure to the cloud.
In essence, this is a stock with sustainable growth potential. It is driven by two powerful trends, namely, digital transformation and the migration to cloud computing. When you add its strong competitive advantage and customer loyalty, it’s no wonder that it is rated “Resolutely Buy” in our POWR rating system. It has a grade of “A” in three of the four components that make up the POWR grade, trade grade, purchase and holding grade, and peer grade.It is also the number one stock in this stock Software-Commercial industry.
Similar to KLAC, the company will announce its latest revenue on October 28.
Salesforce.com (Customer relationship management)
The next one on this list is undoubtedly the most famous. As the king and pioneer in the CRM field, the company has benefited a lot from the remote work trend. YTD, the stock has risen 53.8%, but still has strong growth potential. Earnings per share last year increased by 115.1% and sales increased by 31.6%. Next year’s sales are expected to increase by 17.9%. This makes CRM one of the most compelling growth stories in the software field.
CRM is a company that promotes software as a service (SAAS) to the world. Its pioneering advantages and high conversion costs are its extensive moat status. The company benefits from strong demand for companies seeking to digitally transform. Now that the platform is a cloud-based platform, it is rapidly adopting its products. As CRM adds more products and solutions, it should only see its revenue increase even more.
Management believes that the total potential market is 176 billion U.S. dollars and already has a place in the international market. Its recent acquisition of Tableau has made CRM a leader in all areas of business analysis from human resources to operations. In our POWR rating system, the stock is rated as “Buy”. The trade grade is “A”, and the remaining components are “B”, which means “buy and hold”, “peer” and “industry grade”. The stock also ranks sixth in the “software-commercial” industry.
Autodesk (ADSK)
ADSK is an application software company that provides services for the construction, engineering and construction, product design and manufacturing, media and entertainment industries. Its software can meet the design, modeling and rendering needs of these industries. In fact, ADSK is considered to be the global industry standard for computer design software, which gives it a broad moat status and high conversion costs.
The stock has risen 37.7% this year and has more than one million users on its construction cloud network. The company’s earnings per share increased by 552% last year and is expected to grow by 39.4% next year. Management expects sales to grow by 16%-18% next year. According to Chief Financial Officer Scott Herren, although the company does hire sales people, 75% of new business is generated online. Its online capabilities allowed the company to maintain it in the early stages of the pandemic. The adoption of BIM 360 solutions continues to increase, and the maintenance subscription (M2S) program has been successful, which is the main catalyst for the company’s development
Higher demand for cloud-based products, design kits and mobile solutions will drive long-term revenue growth. In addition, its acquisition of Pype should increase the user experience for its Construction Cloud users. In our POWR rating system, the stock was rated as “Strong Buy”. It has an “A” level in three of the four POWR components, including trade level, purchase and hold level, and pair level. Its industry rating is “B”. The stock is also ranked 8th in the “software-commercial” industry.
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In after-hours trading on Thursday, KLAC’s stock price did not change. YTD, KLAC has risen 15.72%, while the S&P 500 Index has risen 8.60% over the same period.
About the author: David Cohne
David Cohne has 20 years of experience as an investment analyst and writer. Before joining StockNews, David served as a consultant for eleven years, providing outsourced investment research and content for financial services companies, hedge funds, and online publications. David likes to research and write articles about stocks and markets. He uses basic quantitative methods to evaluate inventory for readers. More…
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