The broader markets remain volatile due to the ongoing COVID-19 pandemic. Most industries have been impacted, including airlines, tourism, retail, and restaurants. Several companies in the tech sector, however, have managed to outperform this bear market.
As people are largely spending time at home, the demand for streaming services has gone up. The work-from-home trend has also sent shares of collaboration stocks such as Zoom Video to record highs. We’ll look at three such tech stocks that remain good buys for May 2020 and beyond.
A trillion-dollar tech heavyweight
The countrywide lockdowns have meant people have to shop online. This will accelerate the transition towards e-commerce, an already expanding market. Amazon (NASDAQ:AMZN) is the top e-commerce company in the world and has gained 22% in 2020. Comparatively, the S&P 500 is down 13% year to date.
While online retail is Amazon’s largest business segment, it is also experiencing a massive surge in demand for its streaming services, such as Amazon Prime Video and Twitch. The public cloud business is gaining pace due to the global transition towards a remote work culture.
Amazon has already created massive wealth for shareholders in the last decade. An investment of $10,000 back in May 2010 would be worth a staggering $178,000 now. One of the reasons why this tech giant will continue to be a top bet is due to its expanding addressable markets.
All its segments are part of high-growth markets, making it an ideal buy for growth investors.
Canada’s largest tech company
Another e-commerce company that has gained momentum in recent times is Shopify (TSX:SHOP)(NYSE:SHOP). It is Canada’s largest tech company in terms of market cap. The company went public five years back and has since returned a whopping 3,770%.
Similar to Amazon, Shopify will also benefit from the shift to online shopping. The company now has over a million vendors on its platform and has managed to increase sales from US$200 million in 2015 to over US$1.5 billion in 2019.
Though Shopify has withdrawn its guidance for 2020, analysts expect the company sales to grow by 25.5% in 2020. Sales growth is estimated at 37.7% in 2021. Due to its staggering stock price rise, investors might be concerned over rising valuations.
The stock has a forward price-to-sales multiple of 40, and considering its earnings of US$0.54 in 2021, it has a forward price-to-earnings multiple of an astonishing 1,200. But Shopify remains a solid long-term bet and must be bought at every major dip.
A niche domestic player
While Amazon and Shopify are popular among growth investors, Constellation Software (TSX:CSU) has managed to fly under the radar. However, CSU has also increased investor wealth since it went public back in 2006. Shares of CSU are up 7,200% since May 2006. This is one stock that outperformed the bear market of 2008-09 as well.
CSU has a unique business model. It focuses on acquiring growth and profitable companies valued between $5 million and $10 million. The acquired companies provide mission-critical software solutions to enterprises and target specific needs.
This means enterprises will continue to use CSU’s services, as switching costs will be high. Constellation Software generates sales from subscriptions, licensing, professional services, and hardware sales.
The company’s high retention rate, diversified client base, and predictable cash flows make it a winning bet in the current uncertain market. CSU stock is up 6.8% and continues to beat the broader markets.
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This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.
John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. David Gardner owns shares of Amazon. Tom Gardner owns shares of Shopify and Zoom Video Communications. The Motley Fool owns shares of and recommends Amazon, Constellation Software, Shopify, Shopify, and Zoom Video Communications and recommends the following options: short May 2020 $120 calls on Zoom Video Communications, short January 2022 $1940 calls on Amazon, and long January 2022 $1920 calls on Amazon. Fool contributor Aditya Raghunath has no position in any of the stocks mentioned.