Between the stock market’s recent correction, political turmoil, and the usual volatility surrounding earnings season, it’s been a wild month so far for equities investors. But there are always bargains to be had for those who know where to look.
To that end, many tech stocks got hit harder than most as the market pulled back. So we asked three top Motley Fool investors to each pick a tech stock that they believe investors would be wise to consider buying in February. Read on to learn why they chose Activision Blizzard (NASDAQ:ATVI), International Business Machines (NYSE:IBM), and Universal Display (NASDAQ:OLED).
Gaming your way to market-beating gains
Steve Symington (Activision Blizzard): Shares of Activision Blizzard pulled back after its fourth-quarter 2017 report earlier this month, highlighting modest 1.4% growth in sales to $2.04 billion, and a 25% decline in adjusted earnings to $0.49 per share. But that doesn’t mean the video game giant wasn’t happy with its performance. To the contrary, Activision Blizzard has never been stronger, beating the company’s expectations on both the top and bottom lines and setting the stage for future growth.
Digging deeper into those results, Activision highlighted its best operating income year ever thanks in part to the continued momentum of franchises like Call of Duty and Destiny 2. The Blizzard studio also achieved its highest-ever operating income despite no major game releases in 2017, riding enduring titles like Overwatch and World of Warcraft. And free-to-play mobile game specialist King Digital — which Activision Blizzard acquired for $5.9 billion in early 2016 — managed to return to growth thanks to continued strength of its core Candy Crush franchise.
What’s more, Activision Blizzard is effectively setting itself up for accelerated growth through a number of promising avenues, including the launch of its Overwatch League to dive further into esports, an ambitious foray into the cinema and consumer products markets, and the impending integration of in-game advertising.
So for investors who use the recent pause as an opportunity to open or add to your position, I think Activision is a compelling way to put your money to work this month.
A blockchain leader
Tim Green (International Business Machines): There are quite a few reasons to buy shares of IBM. The stock trades for just 11 times adjusted earnings. It sports a 4% dividend yield, and after five years of disappointment, the company has finally returned to growth.
If you’re looking for a reason to buy beyond the numbers, here it is: IBM is a blockchain leader, and if the technology lives up to even a fraction of its promise, Big Blue will benefit. Blockchain is the distributed ledger technology that underlies bitcoin, but it has plenty of other potential applications. IBM has already worked with more than 400 clients on blockchain projects, leveraging its global presence and deep relationships with existing customers.
In January, IBM and shipping giant Maersk announced the formation of a joint venture aimed at launching a blockchain-based digital trade platform for the global shipping industry. This stemmed from a collaboration first announced in 2017, and it’s expected to be up and running within six months. Initiatives, partnerships, and collaborations are giving way to real blockchain-based businesses for IBM.
Because IBM stock is so cheap, you’re basically getting this blockchain potential for free. If blockchain turns out to be a dud of a technology, it won’t really matter in the grand scheme of things. If it doesn’t, IBM will be at the center of a major technological shift.
A bright future on deep-discount sale
Anders Bylund (Universal Display): In 2017, Universal Display’s share prices tripled thanks to mighty Apple (NASDAQ: AAPL) using its organic light-emitting diode technology in the iPhone X’s screen. 2018 has been less of a walk in the park for Universal Display investors, and share prices have declined more than 20% from their mid-January peaks.
The reasons for Universal Display’s recent market weakness include less-than-stellar iPhone X sales and a looming fear that the company’s largest customer might not renew its expired contract for technology licenses and material buys. If the iPhone concerns are on target, last year’s Apple-based gains might be for nothing and Cupertino could give up on this newfangled OLED technology altogether. And it would be very bad news indeed if Samsung (NASDAQOTH: SSNLF) Display stopped churning out OLED-based display panels by the boatload.
Well, Samsung has indeed renewed that expired Universal Display contract. Shares jumped as much as 14.8% higher when that tidbit was announced, and the new deal will run through the end of 2022. That’s one worry investors can stop losing sleep over. We’ll probably get more detail on the Samsung deal when Universal Display reports earnings next week.
As for the iPhone X disappointment, fellow Fool Ashraf Eassa argues that OLED screens are an essential piece of Apple’s long-term strategy at this point. He wouldn’t worry about Apple switching its flagship phones back to inferior LCD screens, and I agree with that analysis.
And you know what? All of this market drama completely ignores the fact that Universal Display is getting into some much larger and more lucrative markets than smartphone and tablet screens. There’s a lot to love about this company’s long-term future, and the stock is on sale for all the wrong reasons right now.
The bottom line
There’s no way to guarantee that these three stocks will beat the market going forward. But between Activision’s strong quarterly report and future growth prospects, IBM’s attractive valuation and recent return to growth, and Universal Display’s recent contract renewal with Samsung Display, we like their chances of doing just that.
Anders Bylund owns shares of IBM and Universal Display. Steve Symington owns shares of Universal Display. Timothy Green owns shares of IBM. The Motley Fool owns shares of and recommends Activision Blizzard, Apple, and Universal Display. The Motley Fool has the following options: long January 2020 $150 calls on Apple and short January 2020 $155 calls on Apple. The Motley Fool has a disclosure policy.