- Hedge Funds Love These 5 Health Care Stocks -- but Should You?
- 5 Stocks With Big Insider Buying
- 2 Biotech Stocks Under $10 in Breakout Territory
- 3 Stocks Under $10 Making Big Moves
- 3 Stocks Under $10 to Trade for Breakouts
5 Tech Stocks to Buy Instead of Facebook - views
BALTIMORE (Stockpickr) -- Facebook (FB) is getting all the attention today as we creep one session closer to the social network’s first day as a publicly traded company. The argument for most of the folks lining up to buy shares is simple: They want a chance to get in on a fast-growing IPO at the ground floor.
But their focus on Facebook is misguided. Here’s why.
Put simply, Facebook is pricey. One of my colleagues said it best when he argued that “retail investors aren’t buying Facebook at the ground floor; they’re buying at the top floor and hoping that Facebook keeps building floors on top of it.”
Facebook is also in a saturated space. The firm has around 63% of the social media market right now, a share of the market that’s essentially been stagnant since the end of 2010 according to data from Experian Hitwire. While that hardly means that revenue growth numbers are about to get blasted, it does mean that one of the biggest growth drivers, market share, has already died off. So while many investors scramble to buy Facebook shares at a premium on Friday, let’s look at some alternatives: instead, we’ll turn to a handful of technology names that still have that market share growth in place.
And frankly, the names on this list may surprise you. Market share growth isn’t relegated to volatile small-caps; all five companies are mid-cap or bigger, and two are bigger than Facebook’s expected market cap will be on Friday’s first trade. To find them, I took a pure view of market share, screening for names that grew their revenues compared to the sum of their peers’ revenues in the last year. From there, the most attractive fundamental names in the tech sector made this list.
Without further ado, let’s get right down to the five stocks growing their market share faster than Facebook.
Chipmaking giant Intel (INTC) isn’t exactly a small growth stock: The $135 billion firm has a market value that’s $35 billion more than Facebook’s loftiest price expectations. At the same time, the firm’s mammoth share of the microprocessor market gives Intel some serious challenges in trying to meaningfully grow its share anymore -- but the firm managed to do just that, growing its share by 10.8%.
How big is Intel’s market share? Enormous. The firm takes home around 80% of the global microprocessor business, manufacturing the “brains” behind the vast majority of computers coming off of assembly lines. But in the entire chipmaking market, there’s still considerable room for growth -- especially given the ballooning demand for chips that power mobile devices.
The computer manufacturing business has been looking considerably less attractive in the last decade, moving from an attractive growth industry to a commodity operation with paper-thin margins. While Intel doesn’t face those same challenges (its chips aren’t commoditized at this point), more exposure to higher-margin mobile devices would mean a bigger payday for the firm.
From a financial standpoint, Intel is looking stellar right now -- and cheap.
The firm currently sells for an earnings multiple around 10, hardly the type of P/E ratio you’d expect from a firm that just grew market share by 10.8% in the last year. At the same time, INTC throws off mountains of cash, leading to a fortress balance sheet and a hefty 3.12% dividend yield.
Frankly, I’d buy Intel a thousand times over before I even looked at Facebook.
Another Intel fan is Warren Buffett, whose Berkshire Hathaway is a holder of the stock as of the most recently reported quarter. The stock also shows up on a recent list of 6 Stocks to Play if the Market Tanks.
Enterprise software firm Oracle (ORCL) is another massive company that grew its market share faster than Facebook in the last year. Oracle managed to grab a 14% bigger piece of the software sales pie last year, increasing its share to 11.05% of the market.
Oracle’s biggest business is application software -- the firm sells mission-critical software packages to firms that need database tools for everything from customer resource management to supply chain analysis. Because Oracle’s software is integrated so tightly into firms’ operations, customers have extremely high switching costs and competitors have big barriers to entry.
More recently, Oracle has taken cloud computing as a big opportunity to offer hosted versions of its software packages, harnessing a big trend in the IT industry.
Like Intel, Oracle has a bulletproof balance sheet with a deep net cash position. Significant recurring revenues also generate massive free cash flows for Oracle, a major funding source for the acquisition spree that management has been on for the last few years. A major common stockholder in Larry Ellison means that management will be eager to return value to shareholders when it can’t earn better returns internally.
It’s been a strong year for EMC (EMC); shares of the network storage firm have rallied more than 21% so far in 2012. EMC is another big beneficiary from the push toward cloud computing -- the firm develops and sells the software and hardware used to link storage devices together to serve the cloud, a critical part of the equation as the amount of data we need to store increases exponentially. The firm grew its share of the market by 10.7% in the last year.
Because EMC provides both hardware and software for networked storage, the firm is largely immune from the eventual commoditization on the hardware side while taking home deep margins on the software side of the business. EMC’s ownership position in VMWare (V MW) is another big boost for shareholders -- it provides a liquid asset on the balance sheet, and a business with more exposure to consumer and small-business customers on the income statement side.
Financially, EMC is another name that’s in excellent financial shape. Like Oracle, the firm hasn’t been shy about acquiring smaller firms with attractive networked storage technologies. That willingness to part with cash for tech should keep EMC’s offerings at the cutting edge and keep clients on its customer Rolodex for the long-term.
EMC is another of David Tepper's stocks, comprising 1.2% of Appaloosa Management's portfolio, and it shows up on a list of 10 Stocks That Boosted First-Quarter Mutual Fund Returns.
It may sound surprising to call MasterCard (MA) a technology company rather than a financial firm. But dive a little closer into MA’s business, and tech is exactly what the firm does.
MasterCard is the No. 2 payment network in the world, operating namesake the MasterCard brand as well as Maestro and Cirrus. Even though top rival Visa (V) has the dominant share of this market, MA has been quietly grabbing a bigger chunk of the industry’s revenues: the firm’s market share increased by 10.9% in the last year.
As a payment network, MasterCard’s fortunes are tied to spending, not to borrowing or customer creditworthiness. That exposure is a very good thing for MasterCard shareholders, especially in the wake of the financial crisis. With investors still reticent to invest in banks because of murky balance sheet recognition, not having to worry about allowances for doubtful accounts or defaults adds a lot of assurance over this stock’s finances.
To boost the top line, MasterCard has taken an aggressive approach at gaining share in the debit card space, a payment method that’s gained popularity over credit cards in recent years. The strategy is clearly delivering the dollar volume that MA is after.
Even though Visa and MasterCard already own a massive swath of the payment card market, overall market growth is one of the biggest catalysts that investors should be looking at right now. As more consumers worldwide make the switch from using cash and checks to the security and convenience of credit and debit cards, a rising tide should lift all ships in the industry.
The smallest name on this week’s list is electronic component distributor Avnet (AVT). This mid-cap firm is incidentally also the one that saw the biggest market share growth in the last year -- AVT increased its share of the industry’s sales by 16.8%.
Avnet distributes components, including semiconductors, connectors, and even software, mainly to original equipment manufacturers. The firm boasts more than 100,000 customers across the globe, focusing primarily on larger, higher-margin items that provide room for Avnet to collect a bigger cut. An increased focus on service revenues could help to smooth out the cyclical nature of the firm’s IT distribution sales.
After pursuing fast growth, Avnet’s balance sheet isn’t as gorgeous as those of the other names on our list, but it’s still in solid shape. The firm has ample liquidity to cover any industry hiccups on the horizon, and the firm’s debt load is easily manageable. As IT spending continues to flow quickly, Avnet is in a solid position to benefit more than most.
To see these stocks in action, check out the Tech Sector Market Share Gainers portfolio on Stockpickr.
-- Written by Jonas Elmerraji in Baltimore.
At the time of publication, author had no positions in stocks mentioned.
Jonas Elmerraji, based out of Baltimore, is the editor and portfolio manager of the Rhino Stock Report, a free investment advisory that returned 15% in 2008. He is a contributor to numerous financial outlets, including Forbes and Investopedia, and has been featured in Investor's Business Daily, in Consumer's Digest and on MSNBC.com.