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We Fools are always on the hunt for great stocks we want to hold for the long haul. So what stocks have captured our attention at the moment? We asked that very question to a team of our tech investors, and they picked Cirrus Logic (NASDAQ:CRUS), Netflix (NASDAQ:NFLX), and IPG Photonics (NASDAQ:IPGP).
Let’s see what they had to say.
A wave ready to crest
Rich Duprey (Cirrus Logic): While there are concerns about demand for Apple‘s (NASDAQ:AAPL) iPhone, which trickles down to Cirrus Logic because it derives more than three-quarters of its revenue from the tech giant, investors still have a tremendous opportunity with Cirrus Logic.
Shares of the audio-chip specialist have pulled back 12% from the highs they hit last month as iPhone sales seemed to weaken, making Cirrus Logic stock even cheaper than it was. It trades at only 16 times trailing earnings and 13 times estimates but also goes for a fraction of its long-term earnings growth expectations of 23% annually. With shares trading at under 13 times the free cash flow it produces, the chipmaker is a bargain stock.
So why shouldn’t investors be worried about slack iPhone demand? Because the iPhone 8 is due out later this year, and the current weakness suggests users are holding off on buying a new phone until the new model comes out later this year. It points to a lot of demand building up ahead of time, like the tide running out as a giant tsunami readies to break.
Moreover, Cirrus Logic’s chips are also wending their way to mid-tier-level phones, which should help the make-or-break mindset that comes with its being so dependent on Apple. With its shares easing back and its valuation very enticing, Cirrus Logic is a tech stock investors will want to dial in on this month.
Queue up a dramatic earnings report
Demitri Kalogeropoulos (Netflix): Netflix shareholders are likely to see plenty of volatility around their company’s second-quarter earnings report due out on July 17. Investors are expecting mixed news from the streaming video giant. On the bright side, subscriber growth should leap to a 3.2 million user pace, from 1.7 million a year ago. Profitability, meanwhile, is likely to plunge to 4.4%, from 9.7% in the first quarter.
The growth and profit figures will both be heavily influenced by Netflix’s decision to push this year’s House of Cards premiere into the second quarter from the first quarter. Yet the longer-term trends paint a picture of steady global growth. Netflix is on pace to add 8.2 million users over the first six months of 2017, for just a slight slowdown from the 8.4 million it gained in the same period last year. Operating margin should nearly double to 7% of sales.
CEO Reed Hastings and his team will probably spend some time this month talking about content, given that exclusive shows and movies are the main drivers behind user growth. They’ve recently stepped up the pace of cancellations, which could be a sign that they’re gaining a better understanding of what works and what doesn’t for Netflix’s diverse but demanding subscriber base. The company needs to ensure it’s getting the biggest bank for its buck as annual content spending jumps to $6 billion.
July’s earnings report should include Netflix’s achievement of reaching 100 million global streaming subscribers. Looking further out, steady growth on the international front will — sometime over the next few quarters — tip the company into pulling the majority of its users from outside the United States for the first time. Both milestones will be worth celebrating as the streaming service marks just its 10th year in existence.
The fiber laser pioneer
Brian Feroldi (IPG Photonics): Manufacturers have used carbon dioxide and crystal lasers for decades to help them with cutting, welding, brazing, and more. However, in recent years, IPG Photonics has been steadily persuading them to switch away from these traditional laser systems and adopt fiber lasers instead. The company’s argument centers on the fact that fiber lasers cost less, are more reliable, consume less power, and boast a smaller overall footprint. Given these advantages, perhaps it isn’t surprising to that learn that big-name manufacturers such as Toyota, Boeing, and KLA-Tencor have signed up to be customers. Those market-share gains have allowed IPG’s bottom line to grow by more than 16% annually over the past five years.
Looking ahead, IPG stands a good shot at continuing to take market share in its core markets as more companies warm up to the benefits of switching to fiber lasers. However, the company also has its eyes set on growing in other ways. Near-term opportunities include significantly expanding its presence with companies from the telecom, medical, cinema, semiconductor, and solar industries. When added together, IPG pegs its addressable market opportunity at around $6 billion. That’s a sizable number when compared with the $1 billion in revenue it pulled in last year.
Given the market potential, Wall Street currently estimates that IPG’s bottom line will grow around 12% annually over the next five years as it executes against its growth initiatives. Yet in spite of this potential, IPG’s shares are trading at only around 23 times next year’s earnings estimates. While that’s not dirt cheap, I think the company’s consistency and long-term potential more than justify the small premium. That’s why I think shares are a solid buy today.
Brian Feroldi owns shares of Apple, IPG Photonics, and Netflix. Demitrios Kalogeropoulos owns shares of Apple and Netflix. Rich Duprey has no position in any stocks mentioned. The Motley Fool owns shares of and recommends Apple, IPG Photonics, and Netflix. The Motley Fool recommends Cirrus Logic. The Motley Fool has a disclosure policy.