Earnings season is in full swing, which gives investors an opportunity to ditch the news cycle for a moment to focus on revenues, cash flows, and profits. Or, as I would argue, the factors that matter most to equity investors long-term.<\/p>\n\n\n\n
This week I want to focus on technology stocks. We\u2019ve seen\nseveral IPOs in 2019 that have made big splashes and garnered a lot of exciting\nmedia coverage. But a closer look reveals that for all the hype and rapid\ngains, many of these companies are yet to turn a profit. Uber, for\nexample, in its first quarterly earnings filing in Q1 posted losses of $1\nbillion on revenue of $3.1 billion. The company is growing at rapid pace, but\nlosing $1 billion in three months is steep.1<\/sup><\/p>\n\n\n\n These figures are a far cry from recent earnings reported by tech behemoths like Amazon and Google. Profit in the second quarter for Amazon was $2.63 billion (yes, billion), which is more than double the profit it made in the first quarter. Alphabet\u2019s (Google) numbers are even more staggering, with a reported $9.2 billion second quarter profit on $38.9 billion in revenue \u2013 a 19% increase from the same quarter last year.2<\/sup> <\/p>\n\n\n\n ____________________________________________________________________________<\/p>\n\n\n\n Focus on the Fundamentals Instead of the Headlines!<\/a><\/strong><\/p>\n\n\n\n When looking at the unknowns of tech, are you wondering where,\nhow, and when to invest? Instead of focusing on the news flow, I recommend\nfocusing on cash flow and other key economic\nindicators. To help you do this, we are offering all readers a first-look into\nour just-released Stock Market Outlook report.<\/p>\n\n\n\n This report will provide you with our forecasts along with additional\nfactors to consider:<\/p>\n\n\n\n If you have $500,000 or more to invest\nand want to learn more about these forecasts, click on the link below to get\nyour free report today!<\/p>\n\n\n\n IT’S FREE. Download the Just-Released Stock Market Outlook<\/a>3<\/a><\/sup><\/strong><\/p>\n\n\n\n \n\n____________________________________________________________________________\n\n<\/p>\n\n\n\n This example of Uber vs. Amazon and Google is, in my view, a cross-section of what it means to invest in the technology sector today. Investors must assess the value of investing in established technology companies like Intel and Microsoft \u2013 which often deliver reliable earnings with steady dividend payments \u2013 against up-and-coming players in technology that tend to be headline grabbing, \u2018disruptive,\u2019 and characterized by exponential growth, potentially high returns, and negative<\/em> earnings.4<\/sup> <\/p>\n\n\n\n The\nquestion is, where and how to allocate? <\/em><\/p>\n\n\n\n Focus\non Cash Flows and Future <\/em>Cash Flows<\/strong><\/p>\n\n\n\n In my view, the winners\nin the technology space will be the corporations that can improve their return\non equity (ROE) while consistently growing revenues and margins. In other\nwords, we need to see how companies can grow earnings consistently and create\nnew sources of cash flow in the future. Microsoft and Amazon\u2019s burgeoning cloud\nbusinesses are a great example, in my view, of how a technology company can\nstep into a new business line for new sources of cash flow. <\/p>\n\n\n\n For investors looking\nahead 10, 20, even 50 years, you\u2019ll want to assess how well-positioned a\ncompany is to either create or apply advancements in technology like 5G\nconnectivity, robotics, Artificial Intelligence, and machine learning to\nenhance productivity, expand manufacturing capabilities, and ultimately sell\nand do more at a lower cost. The cash flow generation potential of these applications\nis virtually unlimited given their asset-light business models, near-immediate\nglobal penetration, and the vast array of essential and life-altering services\nthey provide to global consumers. <\/p>\n\n\n\n Taking\nthe long-term view \u2013 and given the many unknowns that come with future\ntechnologies \u2013 may give the impression that an investor needs to make a\ncalculated bet for where, how, and when to invest. But I don\u2019t think it has to\nbe that complicated. In my view, if an investor follows the cash flow versus\nthe news flow it will become clearer which companies have competitive\nadvantages and sustainable business models. Getting this right takes great\nscrutiny and analysis from a bottom-up standpoint, something we strive to do\nhere every day at Zacks Investment Management. <\/p>\n\n\n\n Bottom Line for\nInvestors <\/strong><\/p>\n\n\n\n It\u2019s been a major\ntheme for much of the current bull market: the biggest technology companies\nhave been outperforming during rallies, pulling the broad index higher. 2019 is\nno exception. Through last Friday, Microsoft, Apple, Amazon, and Facebook have\ndelivered combined performance that accounts for 19% of the S&P 500\u2019s total\nreturn for 2019 (note: all of these companies are very profitable).5<\/sup><\/p>\n\n\n\n Emerging\ntechnologies stand to fuel growth and cash flow for decades and generations to\ncome. For investors, having broad, diversified exposure to equities in tech and\nelsewhere means giving yourself the ability to participate in that growth as it\nlikely unfolds.<\/p>\n\n\n\n In my view, it is essential to be attentive to\nthe changing tech landscape. This means keeping a close eye on revenues, cash flows,\nprofits and other key economic indicators. To help you do this,\nwe are offering all readers a first-look into our just-released Stock Market Outlook report.<\/strong><\/p>\n\n\n\n This report will provide you with our\nforecasts along with additional factors to consider:<\/p>\n\n\n\n If you have $500,000 or more to invest and\nwant to learn more about these forecasts, click on the link below to get your\nfree report today!6<\/sup><\/strong><\/p>\n","protected":false},"excerpt":{"rendered":" Look at current and future earnings to identify tech stock winners<\/p>\n","protected":false},"author":3,"featured_media":7430,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[63,71],"tags":[],"class_list":["post-8143","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-mitch-on-the-markets","category-private-client-group"],"acf":[],"_links":{"self":[{"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/posts\/8143","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/users\/3"}],"replies":[{"embeddable":true,"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/comments?post=8143"}],"version-history":[{"count":1,"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/posts\/8143\/revisions"}],"predecessor-version":[{"id":10730,"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/posts\/8143\/revisions\/10730"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/zacksim.com\/blog\/wp-json\/"}],"wp:attachment":[{"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/media?parent=8143"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/categories?post=8143"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/tags?post=8143"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}