It's been a rocky, uneven earnings season for the tech sector. But if you know where to look amid all the noise and numbers, there are clues that can help you find the best tech stocks to buy now.
Until Apple Inc. (Nasdaq: AAPL) and Facebook Inc. (Nasdaq: FB) reported this week, tech stock investors had almost uniformly glum news from the biggest names in the sector.
Google Inc. (Nasdaq: GOOG), Microsoft Corp. (Nasdaq: MSFT), Intel Corp. (Nasdaq: INTC) and Yahoo! Inc. (Nasdaq: YHOO) all disappointed to some degree.
"The tech sector's relative performance versus the S&P 500 has been dismal for a long time and signaling that we're going to have a tough earnings season," Hugh Johnson, chairman and CIO of Hugh Johnson Advisors, told Breakout.
But investors need to avoid the knee-jerk reaction of interpreting a few earnings stumbles by some big names as a flashing red exit sign for tech.
While some big tech companies are indeed facing serious challenges, several are on the verge of major turnarounds.
"I see this as a transitional quarter," said Money Morning Defense & Technology Specialist Michael Robinson.
What's more, some positive data buried in several of these reports point very strongly to the next big growth areas for the sector, and by extension to the best tech stocks to buy now.
Earnings in any given quarter usually don't give a complete picture of what's going on with a given company and which direction it's headed. This quarter's batch of earnings was a prime example of that:
Bottom line: MSFT is not a tech stock to buy now -- at least until Ballmer gets his long overdue pink slip.
"Yahoo needs to prove it can grow sales and integrate [recent acquisition] Tumblr in a way that grows profits," said Robinson.
Bottom line: Yahoo would not be a tech stock to buy now but for its stake in Alibaba which could pay off handsomely if and when that Chinese e-commerce company goes public.
And yet as bad as it looks, Robinson likes Intel's prospects going forward. He noted that INTC recently struck a deal with Samsung to put its Atom chips in the Galaxy Tab 3, and is expanding in other areas such as wireless data centers With mobile chips making up just 1% of Intel's business, Robinson says Intel stock could more than double.
Bottom line: Intel is a tech stock to buy now.
"I'm concerned that Android is eating into the market share of their core products, especially the iPad," said Robinson. While Apple is still making gobs of money, growth significant enough to move the stock higher will only come with at least one new breakthrough product.
Bottom line: AAPL is a tough call, but unless you have faith that a new game-changing product is imminent, it's not a tech stock to buy now.
But Google's earnings don't tell the story of its potential. Robinson likes how GOOG seized upon the mobile wave with its now-dominant Android operating system, and how it keeps expanding into exciting new areas of tech growth, from wearable computers like Google Glass to robotic cars to augmented human intelligence.
"This stock is poised to gain roughly 50% by the end of 2015, and that's on the heels of a two-year run of 70% gains," Robinson said.
Bottom Line: Google is a tech stock to buy now.
Yet Money Morning Chief Investment Strategist, Keith Fitz-Gerald, a long-time critic of Facebook, retains his reservations. Fitz-Gerald pointed out that the gains in mobile looked impressive mainly because of an easy year-ago comparison, when FB had relatively little mobile ad revenue.
And given the competition for mobile ad revenue from the likes of Google and others, as well as the virtually non-existent barrier to entry for direct competitors, Fitz-Gerald stands by his belief that "Facebook has absolutely no place in the average investor's portfolio."
Bottom line: Facebook is definitely not a tech stock to buy now-and probably not ever.
While Robinson clearly thinks several of the tech titans are among the best tech stocks to buy now, he says they are often not the best bellwethers for tech and especially not for the sectors of tech from which the most growth will come, like cloud computing and "Big Data."
Instead, Robinson recommends that investors keep an eye on a company like SanDisk Corp. (Nasdaq: SNDK), which makes solid state hard drives as well as the flash memory used in mobile devices.
"SanDisk gives us a look at three key sectors in one stock," Robinson said, noting that its products are used in mobile wave devices as well as servers used for cloud computing and Big Data.
Oh, and SanDisk's earnings quadrupled from the year-ago quarter. With plenty of growth in front of it, clearly SanDisk is also one of the best tech stocks to buy now.
Speaking of Big Data, Robinson has another tech stock that he watches closely to track that sector of tech. The high-powered equipment it makes helps other companies design aircraft and autos, model new drugs and run weather simulations.
Here's the company that Michael Robinson considers the top bellwether for Big Data
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