Tech stocks took a hit during the market slump in May. But that kind of volatility is fertile ground for investors seeking solid long-term buying opportunities.
With that in mind, we asked Motley Fool contributors for a few tech stocks that are attractive here as investors look ahead in June. Read on to find out why Veeva Systems (NYSE: VEEV), Garmin (NASDAQ: GRMN), and Tencent (NASDAQOTH: TCEHY) topped that list.
A market leader in a high-growth niche
Leo Sun (Veeva Systems): High-growth cloud stocks have been largely immune to the trade war and tariffs. Within that massive market, niche players like Veeva Systems -- which have first mover's advantages and wide moats -- are leaving bigger players in the dust.
Veeva offers cloud services to over 750 life science companies, including pharmaceutical giants like GSK and Novartis. Its platform allows those companies to manage customer relationships and track industry regulations, clinical trials, prescribing habits, and other data in real time.
The company constantly expands that ecosystem with fresh features like the Veeva Nitro data warehouse; employee training tools for Veeva Vault; and Veeva Andi, an artificial intelligence application that crunches and analyzes its customer relationship management (CRM) data.
Intense competition among drugmakers is boosting demand for Veeva's services, and that momentum won't fade anytime soon. Last year, Veeva's revenue rose 25%, its adjusted operating income grew 40%, and its adjusted EPS surged 70%.
Its recent first-quarter report showcased that strength with 25% sales growth, 49% growth in adjusted operating income, and a 52% jump in its adjusted EPS. The gross margins of Veeva's subscriptions (which accounted for 81% of its sales) and professional services expanded -- indicating that it still enjoys plenty of pricing power.
Veeva expects its fiscal 2020 revenue to rise 21% to 22% this year, while analysts expect its adjusted earnings to rise 18%. Veeva isn't cheap at about 70 times forward earnings, but its dominance of a high-growth niche market arguably justifies that premium. Investors might want to wait for a pullback before starting a position in the stock, but it's still a solid long-term play that is well insulated from trade war headwinds.
A consumer tech specialist with an impressive growth record
Demitri Kalogeropoulos (Garmin): Navigation device giant Garmin has quietly assembled an impressive track record of underpromising and overdelivering for its shareholders lately. Sales notched records in each of the last three years while profitability steadily expanded into new highs. It's particularly impressive that Garmin achieved these wins despite contraction in its automotive GPS unit and huge demand-trend changes in the fitness tracker segment. Its diverse portfolio -- which spans smartwatches, fitness watches, and marine and aviation devices -- is a key factor behind that sturdy performance.
CEO Cliff Pemble and his team are predicting a slight growth slowdown in 2019, with sales gains clocking in at about 5%, versus 7%. Its first-quarter results, a seasonally slow period, outpaced that target and suggests Garmin might again beat its full-year prediction -- just as it did last year.
Investors won't have a good reading on those demand trends until Garmin releases its many innovative products that constitute the 2019 lineup. If recent history is any guide, it's likely that its design, marketing, and manufacturing assets will deliver market-beating sales this year as the company continues to benefit from a shift toward higher-margin products. All of that spells potentially solid returns for investors who are willing to stomach some uncertainty by purchasing this stock well before the holiday shopping season kicks off.
Buy this Chinese tech giant before the market catches on
Steve Symington (Tencent): Tencent shares are down 11% since the beginning of May due to a combination of its technically mixed first-quarter report -- which highlighted record earnings but lighter-than-expected revenue -- and concerns over the trade war between the U.S. and China. But I think the stock is poised to rebound, particularly as the market sees the fruits of investments made by the Chinese internet and gaming services company to reaccelerate growth.
For one, while reported revenue growth from Tencent's online games segment fell slightly on a year-over-year basis last quarter, cash receipts actually climbed 10%, with the difference due to the timing of revenue deferrals from some titles released later in the quarter. Management further suggested gaming should benefit from a number of new title launches in Q2, as well as the expanded rollout of its popular Season Pass features for key games in China.
What's more, Tencent began breaking out results from its fintech and business cloud services for the first time last quarter, indicating these budding businesses are already generating substantial revenue (up 44% to over $3.1 billion) despite remaining in their early stages of expansion.
There has been steady growth in monthly active users for Tencent's core WeChat and Weixin multipurpose social media platforms (up 6.9% year over year to 1.112 billion), QQ instant messaging platform (up 2.2% to 823 million), and social-networking site Qzone (up 4% to 572 million), as well as new subscriptions to Tencent Video (up 43% to 89 million). So the advantages of Tencent's multipronged approach to driving diversified growth have become increasingly clear -- just not necessarily to the broader market just yet.
For patient investors willing to pick up shares before that strength becomes more apparent, I think Tencent is one of the most compelling tech stocks on the market today.
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Demitrios Kalogeropoulos has no position in any of the stocks mentioned. Leo Sun owns shares of GlaxoSmithKline and Tencent Holdings. Steve Symington has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Tencent Holdings and Veeva Systems. The Motley Fool has a disclosure policy.