Investors might be wary of buying tech stocks as the trade war escalates, since many companies are heavily exposed to China. But today, a trio of our Motley Fool investors will highlight three tech stocks that are still worth buying in August: Microsoft (NASDAQ:MSFT), Garmin (NASDAQ:GRMN), and Talend(NASDAQ:TLND).
A mature tech stock that became a growth stock again
Leo Sun (Microsoft): Microsoft was once considered a “mature” tech stock, to be owned for stability and income instead of growth. But under CEO Satya Nadella, who took the helm in early 2014, Microsoft turned its cloud business into the tech giant’s new growth engine.
Microsoft’s revenue rose 14% to $125.8 billion in fiscal 2019 (which ended on June 30), and its adjusted EPS grew 22%. During the fourth quarter, its commercial cloud revenue — which mainly comes from Office 365, Dynamics 365, and Azure — surged 39% to $11 billion and accounted for a third of its top line.
Azure is now the second largest cloud infrastructure platform in the world after Amazon Web Services, and many of its top customers are retail giants that don’t want to feed Amazon’s growth. Azure’s revenue grew 68% annually in constant currency terms during the quarter, easily outpacing AWS’s 37% growth last quarter.
The growth of Microsoft’s cloud business complements the steady growth of its Windows business and the double-digit growth of its Surface hardware and LinkedIn units. All of those strengths offset the weaker growth of its gaming unit, which faces cyclically lower demand for its Xbox consoles and games.
Simply put, Microsoft is a well-diversified tech giant with plenty of irons in the fire. Analysts expect its revenue and adjusted earnings to grow 11% and 10%, respectively, this year — which is a remarkable growth rate for a company with a trillion-dollar market cap. It also trades at a reasonable 23 times forward earnings and pays a forward yield of 1.3%, which makes it a solid defensive tech play for a turbulent market.
Beat the holiday rush
Demitri Kalogeropoulos (Garmin): Consumer tech specialists are risky investments as it can be hard for these companies to consistently stay ahead of the competition while responding to rapid changes in demand trends. Fitbit has struggled on both points in recent years, and the result has been painful for long-term shareholders, with the stock down over 70% since mid-2016.
Garmin isn’t your average consumer tech giant, though. The company owns a wide portfolio of GPS device franchises that include fitness trackers and smartwatches, but also a full line of boating and aviation navigation products. That deeper selection has helped it post strong sales growth in each of the last three years even as demand shrank in niches like low-margin fitness trackers and automotive navigation devices.
Better yet, Garmin’s growth in recent quarters has tilted toward its marine and aviation segments, which demand higher performance and have less competitive industries. Those factors help explain why profit margins are rising, with gross profitability recently passing 60% of sales, up from 58% a year ago.
Garmin’s success in these areas also means management’s upgraded 2019 outlook is a bit more certain since it doesn’t depend as much on spiking consumer demand around the holiday shopping crush. Thus, investors buying shares today are getting a high-performing business with an improving earnings profile…
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