The tech sector continues to attract investors with its potential for high growth after producing many of the last decade's most extraordinary winners. Taken as a whole, tech investments present a heightened risk-to-reward trade-off, and while 2016 has been a volatile year for many big tech companies, the influential and far-reaching nature of technology suggests the sector will continue to play host to the most lucrative growth opportunities.
With an eye on influential technology trends, we asked three of our contributors to pick a tech stock that might deserve a spot in your portfolio. Read on to learn which stocks they marked as "buys" in this merry month of May.
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: There's a burgeoning industry online that one company is quietly taking control of. Yes, I'm talking aboutMatch Group , the parent of such popular online dating sites as Tinder, OkCupid, Match, and recent acquisition Plenty of Fish.
Following a strong earnings report, Match shares have already jumped more than 20% in May, but there's plenty of room for the stock to rise.
Match is the clear leader in the fast-growing online-dating industry, with three of the four most popular sites in the Unites States, according to ebizmba.com.The recent IPO saw 63% annual user growth in the past four years and has a monthly active user base of more than 59 million.
With Match stock's P/E of just 22, the market seems to be underestimating the long-term growth possibilities in this industry, especially in paid users and internationally. Match's revenue growth has accelerated over the past three years from 11% to 16% to 21% in its most recent quarter, and its dating app Tinder has shown exceptional growth lately. The company estimates an addressable market of more than 500 million people, meaning that revenue should naturally grow as Internet access spreads and more people look for love online. It sees that addressable market expanding to 672 million by 2019.
With strong brand recognition, a dominant position in a growing industry, and a modest valuation, Match shares look primed to outperform this month and beyond.
: One tech stock down on its luck recently is TripAdvisor . Shares have been walloped over the past year while management has attempted to reinvent its business, shifting away from just being a review site and making a huge push into being a travel booking platform.
The change in strategy caused this former fast-grower to experience a sales decline in the last quarter, and its adjusted earnings per share plunged by 40%. Understandably, these numbers have some investors questioning whether the company has made the right strategic moves, and they've dumped shares as a result.
Despite the short-term pain, this should be a great move over the long term. By investing heavily in its "instant-booking"platform, TripAdvisor will create sites that are a one-stop shop for all things travel, which should greatly increase brand loyalty and encourage repeat visits.
While we wait for the full transition to be completed, TripAdvisor keeps growing in popularity. The company now boasts 350 million reviews on its site, which is the largest travel-review database in the world. Those reviews attract more than 340 million unique visitors each month, a number that keeps heading higher.
The company's investments in mobile have also paid off in spades. More than half of its visitors now come from mobile devices, and TripAdvisor's app has been downloaded more than 315 million times. To me, that proves that by investing in the user experience, the company is becoming an indispensable travel companion, which bodes well for its future growth trajectory.
Finally, it's important to keep the big picture in mind when investing in TripAdvisor. In 2015 an estimated more than $1.3 trillion was spent on travel worldwide, while TripAdvisor's revenue was only $1.5 billion. Investing heavily now to become the first place that millions of travelers think of when they want to book a trip could pay off handsomely down the road. That's why I'm OK with the company's sacrificing short-term growth for long-term gains.
With Wall Street focused on recent results, the company's shares are trading near the lowest price-to-sales ratio they ever had. I think that makes them a bargain at current prices, which is why this is my favorite tech stock to buy in May.
: Networking stalwart Cisco Systems packs a roughly 3.9% dividend yield and trades at just 13 times projections for forward earnings, and the company's industry-leading position, substantial growth potential, and room for continued payout increases make the stock an attractive buy.
At the core of Cisco's growth path is an expectation for huge increases in the volume and importance of Internet communications: The company estimates that data center traffic will have roughly tripled from 2014 to 2019, with increases in total number of devices and machine-to-machine communications spurring the growth. The ongoing data boom presents opportunities for Cisco to deliver tailored hardware in addition to cloud and Internet of Things service platforms, and success in these areas would likely build a retroactive case for the stock being significantly undervalued at current prices.
Growth for the company's switching and router hardware has been impeded by movement from competitors including Juniper Networks and Huawei, but a growing focus on service platforms looks to not only segue the company into higher-growth businesses but also differentiate its hardware offerings and create a buffer against lower-priced alternatives. The roughly $135 billion market cap company has been at the forefront of the network and connectivity industry for decades, and a range of partnerships and acquisitions orchestrated in recent years combined with the company's strong foundation and investment in security position it to be a key beneficiary of the tech trends shaping global communication.
Getting back to the dividend side of things, Cisco boasts one of the best yields of any Dow tech stock, and with $11.3 billion in free cash flow generated in the company's last fiscal year and a reasonable payout ratio at roughly 49%, the company is in good position to continue raising its payout.
With a strong dividend profile and acompelling position in an industry that will increasingly shape global commerce, Cisco has the potential to be a big winner over the long term.
The article 3 Tech Stocks to Buy in May originally appeared on Fool.com.
Brian Feroldi owns shares of TripAdvisor. Jeremy Bowman has no position in any stocks mentioned. Keith Noonan has no position in any stocks mentioned. The Motley Fool owns shares of and recommends TripAdvisor. The Motley Fool recommends Cisco Systems and Match Group. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.
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