Best Technology Stocks to Buy Target Disruptive Innovation Trends
The best technology stocks to buy are targeting disruptive innovation trends that include deep learning, streaming media, electric vehicles, automation and 3D printing, according to a new study by New-York-based technology investment firm ARK Invest.
ARK’s “Big Ideas 2020” report focuses on key trends driving growth rather than recommending specific stocks, but I reached out to seasoned market followers who track key technologies closely and they revealed their favorite companies in each niche. The result is an array of the best technology stocks to buy that vary from established giants involved in several trends to smaller specialists focused on just one.
Six additional “Big Ideas” in the report feature autonomous ride-hailing, aerial drones, next-generation DNA sequencing, biotech research and development (R&D) efficiency, digital wallets and bitcoin. Investors willing to commit funds to these promising technologies should consider potential returns, their own risk tolerance and whether they also want dividend-paying stocks before deciding which ones to buy.
Artificial Intelligence and Deep Learning Boost Best Technology Stocks to Buy
“I think the best idea in the report is artificial intelligence/deep learning,” said Bob Carlson, who leads the Retirement Watch advisory service and serves as chairman of the Board of Trustees of Virginia’s Fairfax County Employees’ Retirement System with more than $4 billion in assets.
Among other key trends identified in ARK’s 2020 “Big Ideas” report, Carlson said an investor could consider artificial intelligence (AI) investments but he cautioned about buying shares in small companies that may have promising ideas but carry “high risk.”
“A better approach is to focus on the established companies that already are active in the field and ahead of most of the other firms seeking to make a way in AI,” Carlson said. “These firms also will be needed to provide the infrastructure smaller competitors need because AI is a resource-intensive field.”
Bob Carlson answers questions from Paul Dykewicz during an interview.
Large Software Stocks Shine as Leaders in AI Development
“The large software firms lead in AI development and are likely to capitalize on developments in the field,” Carlson continued. “These include IBM (NYSE:IBM), Alphabet/Google (NASDAQ:GOOG) and Microsoft (NASDAQ:MSFT).”
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Two of those three stocks pay dividends, with current yields of 4.69 percent for IBM and 1.22 percent for MSFT. GOOG has yet to begin paying any dividends as it invests in pursuit of future growth.
AI also requires cloud computing, data farms and innovative chips, said Carlson, who added that investors should consider buying the best technology stocks in these areas.
Computer Chip Manufacturers Rank Among Best Technology Stocks to Buy
Among computer chip manufacturers, NVIDIA (NASDAQ:NVDA), with a current yield of 0.26 percent; Intel (NASDAQ:INTC), yielding 2.11 percent; and non-dividend-payer Micron Technology (NASDAQ:MU) are worth potential investment, Carlson continued. In cloud computing, Microsoft, Google and another non-dividend payer, Amazon (NASDAQ:AMZN), are the top stocks, he added.
“Notice that Microsoft and Google are key players in both software and cloud computing for AI,” Carlson said.
“An even more conservative way to benefit from AI is to invest in data storage firms, or data farms,” Carlson continued. “AI uses a significant amount of computer power. Firms that provide data storage for rent have done well the last few years and are likely to continue to benefit from the spread of AI in particular and cloud computing in general. These companies mainly are structured as real estate investment trusts (REITs). Be careful about buying them now. They had strong returns the last couple of years and trade at high valuations. Also, the large users of data centers, such as Amazon and Google, are more inclined to build their own data centers now than to outsource. Leading firms in the sector are Equinix (NASDAQ:EQIX), CyrusOne (NASDAQ:CONE) and Digital Realty (NASDAQ:DLR).”
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The dividend yields are 1.67 percent for EQIX, 3.15 percent for CONE and 3.47 percent for DLR. Income investors thereby can buy shares in established data storage companies, receive dividend payments and benefit from the expected strong growth in AI and cloud computing.
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Innovations Drive Best Technology Stocks to Buy
“Technological innovation has always been a major driver of equity prices, and the reason why is because new technologies and new innovations are what drive earnings growth,” said Jim Woods, who leads the Successful Investing and Intelligence Report newsletters.
Without a doubt, the innovations coming in 2020 and beyond offer numerous opportunities for investors, Woods continued. It is just a matter of which “innovative trends” investors prefer to choose, added Woods.
Some of his favorite picks in the innovation field include payment services firm Fiserv (NASDAQ:FISV), big data software firm Splunk Inc. (NASDAQ:SPLK) and semiconductor test equipment maker Teradyne (NASDAQ:TER). Woods currently recommends Fiserv in his Bullseye Stock Trader advisory service and Teradyne in his Fast Money Alert service, while he told me Splunk is on his watch list.
“These three stocks are excelling, both in terms of earnings growth and share price performance,” Woods said. Plus, each is well-positioned within its given niche to outpace the competition in 2020.”
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Paul Dykewicz meets with Jim Woods
ARK Invest’s ARK Next Generation Internet ETF (NYSEARCA:ARKW) exchange-traded fund (ETF) includes Tesla (NASDAQ:TSLA), its No. 1 position at 8.99 percent of the portfolio’s holdings. Tesla, led by CEO Elon Musk, has surged in recent months, despite a pack of short sellers who seem determined to bet on the stock’s fall even as it rolls out a continuing series of technological advances.
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Best Technology Stocks to Buy Include Live Streaming Companies
Stocks that lead in live streaming include Twitch, which Amazon.com (NASDAQ:AMZN) bought in 2014 for nearly $1 billion, YouTube Gaming, Facebook (NASDAQ:FB) gaming and Microsoft’s (NASDAQ:MSFT) Mixer.
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Big Ideas Can Include Misfires Among Technology Stocks
“Big ideas can circulate for years before the business logic to support them finally materializes,” said Hilary Kramer, host of a national radio program called “Millionaire Maker” and head of the GameChangers advisory service. “Until that happens, it’s all hypothetical. You aren’t investing so much as making a wish for a brighter future. If enough people make that wish, the stock makes money. Otherwise, it’s just throwing your coins into a fountain and closing your eyes.”
But the moment may have arrived for some of the “disruptive trends” mentioned in ARK’s new report, said Kramer, whose 2-Day Traderservice has netted profits in 83 percent of its trades for an average return of 10.63 percent since launching in July.
“It’s no coincidence they’re amply represented in my new book ‘GameChanger Investing,’” Kramer said. ”After years of old technology crushing competitors and creating new multi-billion-dollar markets from zero, those companies have become the status quo. They don’t have anywhere left to go. It’s time for a fresh wave of innovators to step up and get the wheels of change turning again.”
For streaming media, Kramer, who also leads the Value Authority advisory service, said her choice is easy.
“Roku (NASDAQ:ROKU) will win no matter which channel ultimately proves dominant,” Kramer said. “In drones, I like a Canadian startup that isn’t even traded on a major stock exchange in the United States yet: Draganfly (OTC:DFLYF). In biotech, Precision BioSciences (NASDAQ:DTIL) has endless potential, while when it comes to finding a near-term cure for cancer, SpringWorks Therapeutics (NASDAQ:SWTX) has done extremely well for my subscribers. I could go on and on… but that’s why I needed an entire book in the first place.”
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Paul Dykewicz interviews Wall Street money manager Hilary Kramer, whose investment advisory services include Turbo Trader, High Octane Trader and Inner Circle.
ARK Invest’s newest “Big Ideas” research report identifies two key technology developments, streaming media and DNA sequencing, that are of strong interest to Jimmy Schaeffler, a senior analyst at the technology research firm Carmel Group, of Carmel-by-the-Sea, California.
As for streaming media, Schaeffler said the industry’s potential stems from a breakdown in the existing pay-TV business model championed by cable and satellite providers. As a result, a “huge new opportunity” has arisen for another version of delivering video, audio and gaming, Schaeffler told me.
“The lack of choice in pricing and in actual programs purchased has been the rub in the past, and the broadband newcomers need to be wary of repeating that problem,” Schaeffler said. “Also, clearly on the positive side, the billions of dollars being spent to create and deliver new exclusive content — especially video and gaming — is a huge driver of streaming services. There will be lots and lots of good programs ahead for consumers.”
In Schaeffler’s view, the best technology stocks for investors to buy to profit from streaming media opportunities are DISH (NASDAQ:DISH) in video, Spotify Technology (NASDAQ:SPOT) in audio streaming and Activision Blizzard (NASDAQ:ATVI) in gaming.
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DNA sequencing is another technology mentioned in the “Big Ideas” report that Schaeffler said he likes due to its key role in keeping people healthy and helping them live much longer. It is a challenge to find anything in life that seems much more compelling than enhancing human health and longevity, he added.
Data Sequencing Offers Another Area for the Best Technology Stocks to Buy
The four DNA Sequencing stocks that Schaeffler said he likes the best are: Illumina (NASDAQ:ILMN), Natera (NASDAQ:NTRA), Guardant Health (NASDAQ:GH) and Invitae (NYSE:NVTA).
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One technology omitted in the ARK Invest “Big Ideas” report that Schaeffer told me he thinks holds big promise is data analysis and warehousing.
“Literally every industry sector benefits actually or potentially from data collection, data analysis and data warehousing,” Schaeffler said. “It is difficult to imagine a business that cannot improve via better data gathering and subsequent use of that information to better target and utilize customer resources.”
Big data analysis stocks Schaeffer said he likes are Amazon (NASDAQ:AMZN), via its Amazon Web Services (AWS), Google (NASDAQ:GOOG) and Microsoft (NASDAQ: MSFT). Small data analysis stocks favored by Schaeffler feature Talend (NASDAQ:TLND) and Alteryx (NYSE:AYX).
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Technology investors have many choices to back the latest disruptive innovations. The winning companies could make taking calculated risk most rewarding.
Paul Dykewicz, , is an accomplished, award-winning journalist who has written for Dow Jones, the Wall Street Journal, Investor’s Business Daily, USA Today, the Journal of Commerce, Seeking Alpha, GuruFocus and other publications and websites. Paul is the editor of StockInvestor.com and DividendInvestor.com, a writer for both websites and a columnist. He further is the editorial director of Eagle Financial Publications in Washington, D.C., where he edits monthly investment newsletters, time-sensitive trading alerts, free e-letters and other investment reports. Paul previously served as business editor of Baltimore’s Daily Record newspaper. Paul also is the author of an inspirational book, “Holy Smokes! Golden Guidance from Notre Dame’s Championship Chaplain,” with a foreword by former national championship-winning football coach Lou Holtz. Endorsements for the book come from Joe Montana, Joe Theismann, Ara Parseghian, “Rocket” Ismail, Dick Vitale and others. Follow Paul on Twitter @PaulDykewicz.
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