Tech stock picks that can beat the market might be a little harder to find than you might believe as the market continues slumping.
The stock market started September on downbeat momentum. A temporary rebound ensued. Chances are against the technology sector in staging a sustained rebound. The Federal Reserve will announce its interest rate policy on September 21, 2022. On that day, the central bank will raise rates by between 50 to 75 basis points.
The impact of higher rates is greatest on many traditional tech stock picks. They typically trade at elevated valuations. Markets discount a tech firm’s future cash flow to present value.
When rates rise, the investor should model a higher discount rate. This lowers the fair value. Still, these tech stock picks to consider have solid prospects.
Adobe (NASDAQ:ADBE) peaked at $699.54 in the last year. After ADBE stock dropped at the start of this year, it traded in a narrow range at around $400. The software supplier of PDFs will not break out until it revises its guidance upward, which makes it one of the top tech stock picks to keep your eye on.
In its second-quarter report released on June 16, 2022, Adobe earned $3.35 a share (non-GAAP). Revenue rose by 14% year over year to $4.39 billion.
Compared to Creative and Digital Media, its document cloud unit grew at the fastest pace. Document cloud rose by 27% year over year to $595 million. Still, Digital Media accounted for $3.2 billion in revenue while Creative drew $2.61 billion in revenue.
Adobe expected Q3 revenue of $4.43 billion, narrowly missing consensus. For the year, total revenue of $17.65 billion is below its previous $17.9 billion prior guidance. Tech investors overlooked Adobe’s strong quarterly results and focused on the lowered outlook. That sentiment may reverse quickly. The bullish market sentiment is gaining momentum.
CrowdStrike Holdings (CRWD)
CrowdStrike (NASDAQ:CRWD) bottomed in May at around $140. Cyber security posted Q2/2023 financial results that justified the stock’s uptrend and put it among the tech stock picks you don’t want to miss.
In its report posted on Aug. 30, CrowdStrike reported revenue growing by 58.5% year over year to $535.1 million. Its predictable subscription revenue rose by 60% year over year to $506.2 million.
Importantly, the firm issued Q3 revenue guidance of up to $575.9 million. Furthermore, revenue for 2023 in the range of $2.223 billion to $2.232 billion is above its prior outlook.
CrowdStrike’s impressive growth is in the absence of acquisitions. It targets a modest 30% free cash flow margin. This is lower than expected because the firm will invest in key initiatives.
It will widen its gap from the competition as those investments lead to growing demand. For example, the firm’s subscription gross margin will remain strong. Its moat will strengthen as a result.
Last quarter, CrowdStrike invested in new technologies and spent on marketing to expand internationally. For the year, it will increase staff. By attracting top talent in the industry, this company will grow its market share in new markets.
DocuSign (NASDAQ:DOCU) delivered strong second-quarter results. Investors renewed their confidence in the company as it pivots past its transition period.
In Q2, the company posted earnings per share of 44 cents. Revenue grew by 21.6% year over year to $622.18 million. GAAP gross margin was a healthy 78%. DocuSign is reviewing its expenses. It must achieve higher efficiency and effectiveness to adjust to the slower macroeconomic environment.
In addition, it faces more competition. The company needs new marketing messaging to increase demand. For example, DocuSign benefits when its customers understand the value of fully integrating an end-to-end digital agreement with eSignatures.
The weaker economy ahead will pressure customers. DocuSign’s marketing team will advertise the cost-savings customers achieve with its product.
In the third quarter, DocuSign expects revenue of up to $628 million, with up to $613 million from subscription revenue. For 2022, it guided revenue of $2.47 billion to $2.482 billion.
Shareholders no longer expect their business to double as it did during the pandemic. However, they do expect DocuSign to scale the business model and expand its profitability.
Alphabet (NASDAQ:GOOGL) is a growth machine in the online advertising space. At the start of 2022, the firm hired staff in anticipation of higher growth. The economic slowdown reverses the benefits of the increased staff resources.
The firm is reportedly restricting travel to business-critical trips. It set a high bar on what management should consider business critical travel. This decision should not disrupt the search engine giant’s business culture strength. It will still achieve innovation and creativity. Staff will need to develop products by meeting online instead.
To achieve a 20% increase in efficiency, Google may need to cut jobs. Shareholders should expect the company to take a one-time write-down on this decision. In the long term, the cost cut will pay off. Google and YouTube will report higher profit margins by running on a lower-cost basis.
HP (NYSE:HPQ) shares are on sale after the company posted fiscal 2022 third-quarter results. Revenue fell by 4.2% Y/Y to $14.66 billion. Personal Systems’ net revenue fell by 3% as consumers scaled back spending. Notebook sales fell significantly, down by 32% year over year. HP’s Printing unit reported a 6% decline in net revenue.
HP managed product pricing to minimize the impact of weak PC and printing demand. It expects more aggressive pricing in Q4. Investors will beat the market by betting that HP’s pricing reduces its channel inventory and increases sales volumes.
In addition, HP’s acquisition of Poly, a provider of workplace collaboration solutions, is a positive development. The company is embracing a hybrid workplace in the coming years. Poly will add new solutions that HP may offer to its customers. This will expand its addressable market.
HP expects net EPS of $3.46 for the fiscal year 2022. Despite slower growth, HPQ stock offers investors steady profitability.
Meta Platforms (META)
Meta Platforms (NASDAQ:META) is losing active users on its core platforms. Third-party websites are dumping the Facebook login button as its usage declines. Meta is pivoting away from Instagram and Facebook advertising revenue. It is building a metaverse. This investment will cost billions annually.
META stock is trading in a tight range of $160 to $180 as investors wait and see. The stock could rally sharply in an instant. Meta could post surprise advertising revenue strength in the next quarter.
It might report better daily active usage. Loyal users may return to the site because they have no other alternative. Admittedly, chances of a trend reversal are unlikely. TikTok is still a hot short-form video hosting service that is popular with the younger audience.
Meta may curtail its aggressive investments in the metaverse. With an insufficient user growth rate, the company might lower its risks by relying on this platform. After raw material costs rose, the company raised prices for its affordable Oculus headset. This will likely slow new user growth on its metaverse.
Zscaler (NASDAQ:ZS) gained nearly 22% when it reported quarterly results. The cybersecurity firm posted a non-GAAP EPS of 25 cents. Revenue rose by 61.4% year over year to $318.06 million.
The firm achieved strong billings growth despite a tough economic environment. Customers require security and connectivity solutions. Those are non-discretionary budget items. More importantly, Zscaler helps customers save money. They eliminate the use of many products by using the wireline Zscaler platform.
Zscaler has $1.7 billion in cash. It will keep that on hand for strategic purposes. Its working capital requirements are low. It does not need much to invest in releasing applications for the public cloud. This will result in expectations of 80% gross margins. In the long term, gross margins will be between 78% and 82%.
In Q1/2023, the company expects revenue of $339 million to $341 million. For the year, total revenue is up to $1.50 billion. Non-GAAP net income a share is in the range of $1.16 to $1.18.
On the date of publication, Chris Lau did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.