Coronavirus-Battered Tech Retirement Bets for Millennials

Radhika Pujara

Millennials are becoming increasingly apprehensive regarding the impending recession and the economic downturn triggered by lockdowns globally owing to coronavirus outbreak.

Per the survey conducted by First Insight, the novel coronavirus is influencing spending decisions of 54% of millennial population. Notably, the survey was undertaken prior to any reported deaths in the United States, which has now crossed 1,000, as of Mar 26, 2020, according to a Statista report.

In this scenario, the “concerned” and “worried” generation can opt for an alternative investment that gives better growth prospects over traditional savings options amid falling interest rates and sinking bond yields.

Millennials have been known for their quirky ideas and distinct views on lifestyle. Among these, the idea of saving big for early retirement is quite a popular one. Some even aspire to retire as early as 40.

The recent sell-off offers brilliant opportunities in the equity market for millennials looking to retire comfortably with financial independence. Though these are riskier, equities are the only asset class that can beat inflation and simultaneously offer capital appreciation over longer period.

Amid fears of an imminent recession and global economic slowdown, millennials may take refuge in coronavirus-battered tech stocks that have robust fundamentals. These stocks have better prospects once the coronavirus crisis eases.

Battered Tech Stocks Become Alluring Retirement Bets

The Technology sector remains attractive owing to continuous digital transformations despite anticipated decline in IT spending. Rapid adoption of cloud computing, and ongoing integration of AI and machine learning, has been a major growth driver.

The accelerated deployment of 5G technology is likely to fuel growth. Moreover, blockchain, IoT, autonomous vehicles, AR/VR, and wearables offer significant growth opportunities.

Markedly, the Technology Select Sector SPDR Fund (XLK) is down 15.4% YTD, while Energy Select Sector SPDR Fund, Financial Select Sector SPDR Fund, and Industrial Select Sector SPDR Fund have lost 52.3%, 33.7%, and 29%, respectively. This highlights the resiliency of the tech sector.

Considering growth prospects of the tech companies, it makes sense to invest for long-term gains. Furthermore, the recent sell-off has significantly lowered the valuations of tech stocks, making them even more attractive for long-term investments.

We have selected five tech stocks that currently carry a Zacks Rank #1 (Strong Buy) or 2 (Buy) with strong long-term growth prospects. You can see the complete list of today’s Zacks #1 Rank stocks here.

The five picks also have net cash position and market cap greater than $5 billion. Both these factors provide resilience to a company’s financial position amid a crisis and imply that it’s more mature, with established customer base, and relatively stable revenues, earnings and cash flow. These factors make the picks alluring recession bets for millennials planning for an easy retirement life.

Year-to-Date Price Performance

5 Top Picks

HP HPQ is expected to gain from growing demand in the Commercial PC market. Increase in sales for commercial customers is a tailwind. Solid revenue growth in retail solutions business and gaming and services orders is a positive. Further, stringent cost control is anticipated to drive margin expansion.

The company's improving market share across the PC and Printer businesses makes us optimistic regarding its long-term prospects.

The Zacks Consensus Estimate for HP’s fiscal 2020 earnings has been revised upward by 5.2% in the past 30 days to $2.41 per share.

As of Jan 31, 2020, HP had cash and cash equivalents of $4.205 billion compared with long-term debt of $3.932 billion. Notably, HP currently flaunts a Zacks Rank #1.

The stock is currently trading 35.7% below the 52-week high of $23.93.

  • Market Cap: $22.12 billion

Microsoft MSFT is benefiting from Azure’s expanding customer base. Markedly, the ongoing expansion in Microsoft Teams’ subscriber base is strengthening the company’s competitive position in the enterprise communication market against Slack and Zoom. Furthermore, the company is well poised to widen the total addressable market through acquisitions of GitHub and PlayFab.

This Zacks Rank #2 stock is also well-poised to gain from a growing user base of different applications like Office 365 commercial, Dynamics and Outlook mobile.

As of Dec 31, 2019, Microsoft had cash and short-term investments balance of $134.25 billion, compared with long-term debt (including current portion) of $69.6 billion.

The stock is currently trading almost 23% below the 52-week high of $190.70.

  • Long-term expected EPS growth rate: 12.96%.
  • Market Cap: $1.128 trillion
  • Past Five-Year Return: 258.6%

NVIDIA NVDA is gaining from strong growth in GeForce desktop and notebook GPUs, which is driving gaming revenues. Moreover, an increase in Hyperscale demand remains a tailwind for the Data Center business.

Further, the solid uptake of AI-based smart cockpit infotainment solutions is a boon for this Zacks Rank #2 company.

As of Jan 26, 2020, NVIDIA’s cash, cash equivalents and marketable securities were $10.90 billion, compared with total debt of $1.99 billion.

The stock is currently trading 22.4% below the 52-week high of $316.32.

  • Long-term expected EPS growth rate: 14.73%.
  • Market Cap: $152.5 billion
  • Past Five-Year Return: 1048.8%

Akamai AKAM is anticipated to benefit from robust growth of cloud security solutions. Moreover, strong performance of its cloud security business and growth in Media & Carrier Division is a positive. Solid demand for Kona Site Defender, Prolexic Solutions, new Bot Manager Premier, and Nominum Services are also expected to drive the top line in the upcoming days. The traction gained by Enterprise Application Access and Enterprise Threat Protector is noteworthy.

Further, increasing adoption of mobile data/apps on growing mobile data traffic bodes well. Strong traffic growth in video downloads, driven by coronavirus-induced stay-home wave, is a tailwind, for this Zacks Rank #2 stock.

As of Dec 31, 2019, Akamai’s cash and cash equivalents (and total marketable securities) were $1.537 billion with no debt obligations.

The stock is currently trading 13.5% below the 52-week high of $103.34.

  • Long-term expected EPS growth rate: 12%.
  • Market Cap: $14.46 billion

Advanced Micro Devices AMD is benefiting from robust adoption of Ryzen, Radeon and latest second-gen EPYC processors. Further, accelerated adoption of AMD’s products in the PC, gaming and data center industries remains a key catalyst.

This Zacks Rank #2 stock is also well-poised to gain from strength in GPU ASPs primarily driven by higher datacenter GPU sales. Moreover, the growing clout of GPUs driven by increasing adoption of AI techniques and ML tools in industries like gaming, automotive and blockchain holds promise.

As of Dec 28, 2019, AMD had cash and cash equivalents (including marketable securities) of $1.50 billion compared with total debt (long-term plus short-term) of $486 million.

The stock is currently trading 24.7% below the 52-week high of $59.27.

  • Long-term expected EPS growth rate: 22.92%.
  • Market Cap: $54.06 billion
  • Past Five-Year Return: 1540.9%

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