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Five tech stocks for portfolio growth

Here are five tech stocks that potentially stand to benefit from the acceleration of technological adoption.

Technology has been the best performing sector the past 10 years (Bloomberg, 2021). The outperformance is attributable to, superior fundamentals. The past decade, tech has had the best earnings growth and profit margins[1][2]. This has naturally translated into higher stock prices.

The coronavirus has been the cherry on top. Thanks to social distancing, more people are working from home, shopping online and using online entertainment. This has brought forward years of technological adoption.

But which companies may stand to benefit? Below, we look at some of the bright lights.

The companies listed below are all found in the ETFS Morningstar Global Technology ETF (ASX Code: TECH).

Microsoft (NASDAQ: MSFT)

One of the biggest companies on the planet, Microsoft may seem like an obvious choice. However, much about Microsoft’s growth story is less-than-obvious. The company has seen a dramatic turnaround under the leadership of Satay Nadella. Under his guidance, Microsoft shed Nokia, branched out into social media with LinkedIn, adopted the subscription model, and embraced open source. The future also looks bright as Microsoft has footholds in major growth themes. Thanks to Xbox and other intellectual property like Age of Empires, it has a foothold in eSports and competitive video gaming. Thanks to Azure, Microsoft is a dominant player in cloud technology. Thanks to Teams, it is the incumbent for the work from home theme. Microsoft has a lot going for it.

Palo Alto Networks (NYSE: PANW)

One of the top dogs in cyber security, whose name is synonymous with “firewall”, Palo Alto Networks has been dealt a win by the coronavirus, with revenue growing 25% year-over-year as of February 2021. Before the coronavirus, companies and governments could manage cyber security more easily. They could, for instance, have simple rules where only IP addresses within their buildings have access to their systems. Now, staff and clients can log in from anywhere thanks to remote work and social distancing, so cyber security has become much more complicated. The group is also transitioning away from hardware and towards software instead, with a positive analyst response.

Citrix Systems (NASDAQ: CTXS)

A pioneer in virtualisation technology. Virtualisation is where you create a version of an app or desktop from one central computer or server. It is what many cloud providers do. It is useful for businesses as it can give IT teams control over who gets access to what resources on which device. With all data stored in a central centre, the risk of cyber-attack is reduced, as staff don’t hold data on their personal equipment. The company missed guidance recently, leading Morningstar to judge it as oversold.

VMware (NYSE: VMW)

VMWare has fallen out of favour and Morningstar believes it could be undervalued. Historically it was thought of for server virtualisation in on-premise data centres. Currently, on-premise servers are in decline as enterprises move to the cloud. Morningstar thinks VMware has shifted nicely and is not being given enough credit for its transition. “We think they are uniquely positioned as the glue between on-premises, public clouds, and private clouds for workloads,” says Brian Colello, director of technology equity research.

“Essentially all cloud providers are offering VMW’s solutions to enable holistic infrastructure management, and this hybrid-cloud infrastructure is playing out to be the norm.”

Skyworks Solutions (NASDAQ: SWKS)

Semiconductors – given the enormous demand they’re receiving from electric vehicles, everyone wants to own semiconductor businesses, but finding them at a reasonable price can be difficult. Skyworks Solutions, is among the best valued of the semiconductor businesses, Morningstar believes. It has “terrific” exposure to 5G smartphones, increasing content in Apple’s iPhone 12’s, and strong fundamentals. Their most recent quarter exceeded expectations.

[1] https://www.yardeni.com/pub/sp500margin.pdf

[2] https://www.yardeni.com/pub/peacocksp500.pdf

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