Tech stocks are the darlings of the market. Hot IPOs, venture capital, revolutionary ideas... it’s all so BIG. Tech stocks are the quarterback of the market football team. They’re the star of the market movie. And the best tech stocks can turn your portfolio into tropical vacations, new cars, and luxurious evenings at your favorite restaurants.
But for every profitable tech stock, there’s a dark, sinister doppelganger that’s ready to eat your money and laugh at your misery. Okay, maybe that’s an exaggeration. Still, the world of tech is vast and volatile. You don’t get fast, seemingly unlimited growth without a share of risk.
Further, there isn’t one type of tech company, either. So “tech stocks” could be biotech, financial tech, educational technology, engineering software, and so on. The common thread is that they are technology companies first, and then they specialize from there.
They can also be some of the biggest names in the economy or micro-cap startups. But when you put all those differences aside, the best tech stocks all share some common traits.
As a whole, technology stocks have been moving up faster than the general market. The Information Technology sector of the S&P 500 has been the index’s top-performing sector for the past 10-year, 5-year, 3-year, 1-year, and year-to-date periods, outperforming the Nasdaq by well over triple-digit percentages in some cases.
In the future, there is a good chance tech sector performance will be even more dominant than it has been. So how do you get in on this?
The best tech stocks, or for that matter, the best stocks in any industry, have a few common traits:
- The company has a product, service, or business model that is revolutionary.
- Their offering has mass-market appeal.
- The company has plenty of room to grow and is likely already fast-growing.
- The stock has strong RP lines, positive earnings, and reasonable valuation (meaning it’s not overpriced).
- And last but not least, it has a stock that’s trending up, indicating that investors’ perceptions of the company are improving—this is important because perceptions are always at least as important as reality.
While they might seem “boring,” there are plenty of older tech stocks that also pay dividends, which is almost always a good indicator of a quality stock. (Just be aware that a dividend alone doesn’t make a stock a good purchase. There are dividend stocks out there hanging on by a thread and don’t have very promising looking futures.) Microsoft (MSFT), International Business Machines (IBM) and Qualcomm (QCOM) are a few dividend-paying tech stocks that come to mind as being particularly reliable over the years.
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