Tech is one of the fastest growing segments of the market. These companies do not get as much attention as Apple or Microsoft, but have consistent strong revenue growth.
Tech stocks are known for not paying dividends and these companies are no exception.
Revenue is reinvested in R&D in order to drive growth.
It is important to diversify, but not too much where you lose profits.
These are the top 5 tech stock I have purchased and continue purchase for my portfolio. Why these stocks? I have used these companies everyday in my business life for years!
I love when businesses serve other businesses.
A business does not buy a product or service unless it really needs that product or services to grow the business and add value.
I am a project manager for a large software compare. I spend most of my day on the phone with people in meetings and creating software sysytems for other businesses to use. Pretty much every company on this list is an important part of my day getting my own services to market.
- ZEN – Zendesk
- GDDY – GoDaddy
- TWLO – Twilio
- SMAR – Smartsheet
- CRM – Salesforce
Why do I invest in software. It is what I know. But that is only part of the reason. The tech industry is hungry.
They do not settle for the status quo. They are in it to change the world. And that is how I feel. I want to make an impact in own life and the lives of others around me.
But there are so many reason to invest in Tech. Yes it is a competitive field, but tech also automates a lof of their functions.
They use the computing power they have to their advantage to keep their costs low. They don’t usually pay dividends. They put that money back into the business.
Why is that important? Because if you want a business to grow you need to invest in the resources neccessary for it to grow. That also translates into greater share price.
They are using their money to invest in the company and also possibly repurchase the shares on the market also driving the price higher.
Research and development for software can be high and there are pitfalls, but you cannot deny the success stories: Microsoft, Apple, Oracle. All started as small companies and expanded rapidly. With Tech the name of the game is scale.
Think Amazon. They have their own fleet of planes now. Walmart. They are the largest company in the history of mankind. Sam Walton knew that if he could reach enough customers that his business would be a success no matter what.
I also like to invest in the future. I love traditional companies like Coca Cola and Bank of America, but I also want to support the future. These 5 companies are focused on where they are going and what the future will look like.
Risks of investing in a tech stock:
- No marketing testing – Tech companies are often developing products and software that are new entries into the market. So there is no known demand for the service.
- May take a long time to recoup your investment – the company might need to reach critical mass.
- May need more seed money. Reaching critical market mass takes a lot of money. These companies often need more funds. Which can dilute your initial investment.
- Theft of intellectual property.
- Speed of innovation – Tech moves at such a fast pace that it needs constantly be evolving. Innovation can never slow down of they risk becoming irrelevant.
Things to ask yourself before investing:
- Is revenue increasing? Even if spending is increasing are they growing at a fast enough pace?
- Does the business have enough cash to continue growth?
- Has the business reached critical mass in the market already?
- What is the P/E ratio and Price-to-book ration compared to other competitors?
There is no shortage of tech stocks to choose from out there. Choose carefully. Not all of them will make it. And some of them will be superstars. Find the ones that works for your plan.
Where are you going financially? I would love to hear your thoughts through a comment.
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