During the great Dotcom days, analysts were fond of saying that "growth is the new income." Back then, tech stocks were all the rage.
Some even went as far to say that if a tech stock didn't have a triple digit price/earnings ratio, it wasn't worth buying. There were even 70 year-olds at the time who bragged about the optical networking stocks they owned - but couldn't program the clock on their VCRs.
That didn't end so well....did it?
But it's been a long time since the Dotcom crash. Twelve years later, tech stocks are stronger than ever.
The trick is to find good companies with good ideas that can translate their core competencies into niches that complement each other.
That way, when one niche falters, the others pick up the slack.
Alternatively, winning tech stocks need to dominate their sector with quality goods, innovative leadership and a dynamic corporate structure. They also have to have proprietary technologies that can keep pace with a rapidly changing marketplace.
If you rest on your laurels these days, it can mean ruination, no matter what size company you are or how much market share you own.
If you doubt that, consider this....
Just five years ago, Research in Motion's (Nasdaq: RIMM) Blackberry was the pinnacle of smartphone technology; now it's listing heavily and may eventually sink. And at one point, Nokia (NYSE: NOK) was the largest mobile phone maker in the world. Now it's become an also-ran. The list goes on and on.
Innovation Is Essential for Tech Stocks
These days, I'm a firm believer in what I call Innovation Investing. In the 21st century, I think this approach is essential.
Investors need to find innovators (big and small) that can build a unique product and know how to get it to market and manage the business.
The future becomes the present very quickly these days and flexible, forward-looking companies that can get the technologies from "lab to fab" (i.e., from the research stage into the product pipeline) quickly will become the ones to thrive in the years to come.
I was talking about this concept a few years back with an executive of a small nanotech firm and he agreed wholeheartedly.
He later confessed he was the former head of research and development at Motorola in early to mid-'90s and his department would invent incredible stuff. The problem was they couldn't get it into production quickly enough.
It's why my two favorites featured below are large tech firms that have the reach and the vision to take advantage of the incredibly fast-paced business environment.
And while I give kudos to Apple Inc. (Nasdaq: AAPL) for moving personal computing as far as it has, the odds are slim that it will lead us into the next generation.
Don't get me wrong, it's a great company with great products. But you can't believe Apple has the only visionaries in the consumer tech space. What's more, given how far they come you have to wonder how much more they can really grow.
Tech Stocks Beyond Cupertino
On the topic of consumer tech, one of my top tech stock picks is Qualcomm Inc. (Nasdaq: QCOM). It is the leading provider of mobile chipsets in the world - and it's a U.S. company.
The thing about QCOM that sets it apart from, say AAPL, is that its chipsets can be found in all mobile phones, tablets, smart grids, modems, 3G/4G networking equipment and..., well you get the point. QCOM works with virtually every phone and device maker.
What's more, QCOM's growth is just beginning since commercial and consumer users increasingly rely on mobile computing and communications.
And while AAPL would have to come up with the new cool device, QCOM just needs to stick to innovating on the chip side so it can continue sell across the entire marketplace.
And talk about innovation. The company just signed a deal with French carmaker Renault to jointly develop wireless charging technologies for electric vehicles.
The company's 3Q revenue was up 28% year-over-year; device sales were up 31%; and operating income was up 24%.
While these numbers are strong given the state of the general economy, the thing to bear in mind is, quarter-to-quarter the stock can have hiccups.
But long term, and that's what we're talking about here, the stock looks extremely promising. Even in the face of a global meltdown, the stock up over 32% over the last five years.
The stock also kicks off a 1.7% dividend as well.
Making Everything Better
My other favorite long-term tech stock is BASF (BASFY). I like to think of this company as the DuPont of the 21st century.
DuPont spent much of the 20th century building upon pioneering chemistry and developing a global reputation for innovation that became so ingrained in everyone's lives that its influence was hardly assumed more than noticed.
To steal a line from one my colleagues, Dr. Tim Harper of Cientifica, nanotechnology is to the 21st century what chemistry was to the 20th century. And without fanfare or marketing hype, BASF has incorporated this technology into every aspect of its business.
The company is actually one of the world's leading patent holders in nanotechnologies. And it gives BASF's entire product portfolio an edge in staying on the vanguard.
Nanotechnologies allow researchers to manipulate materials down to the molecular and even atomic level. That means scientists can custom build substances to enhance the way they work in materials or other substances.
It means you can build a water-based paint with no toxic fumes that is as durable as an oil-based paint. Or building "smart" insulating properties into housing materials that keep the house warmer in the winter and cooler in the summer. And that is just the beginning.
Plus, it kicks off a nice 4.9% dividend. In my mind, that makes BASF buy below $73 as a great long-term growth stock posing as a great total return play.
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