Looking for a new flame this weekend? Growing technology stocks have a lot to offer in an investment relationship. The world is going digital, so there is no shortage of growth in the next decade, and technology is also very profitable. Three Fool.com contributors think PayPal Holdings (NASDAQ: PYPL) Universal display (NASDAQ: OLED), and Microchip technology (NASDAQ: MCHP) are now worthy of your attention.
The intersection of banking and technology
Nicholas Rossolillo (PayPal Holdings): Digital payments aren’t new, but PayPal has done a lot of work to make them more mobile and contactless. Since the digital wallet company split from the former parent eBay in 2015, shares are up more than 670% as the app has become a modern household name.
But PayPal’s run is far from over. The fintech company is at an increasingly important intersection of banking and technology. In a world pushed further down the digital path, flexible options to send money and make purchases are a must for consumers and businesses alike. PayPal and its affiliates (including the Venmo Money Transfer mobile app) provides the necessary tools, enabling e-commerce, contactless in-store payments and flexible payment terms (the interest-free option “Pay in 4”, buy now, pay later ), and a growing ecosystem of related services.
During the last quarter of 2020, payment volume using a PayPal service increased 39% to $ 277 billion, active accounts were up 24% to 377 million, and revenue was up 23% from a year ago. But what’s really powerful about PayPal’s business is its rapidly growing profit margins. Since most of the payment technology infrastructure has been paid for, new revenues are mainly profit. As a result, free cash flow increased by 50%. With an average of more than $ 1 billion in cash flowing into its business each quarter, PayPal has the opportunity to invest heavily in new features of its apps and make acquisitions (such as the purchase of e-commerce shopping tool Honey last year. ).
For investors looking for a stock they can love for a long time (at least a few years, but the longer the better), PayPal checks all the right boxes. Fintech is only set to grow in importance in the near future, and PayPal is a top name in the next generation of financial services and e-commerce tools.
Image Source: Getty Images.
Universal Display is bright, beautiful and strong
Anders Bylund (universal display): You already love this company’s products even if you didn’t know you were using them. It’s high time to fall in love with Universal Display as an investment too.
Do you know that high-end smartphone you use? Whether it’s an Android or an iPhone, it likely has an organic OLED (light-emitting diode) display. Traditional LCD screens shine a light through a grid of colored pixels. In OLED screens, the pixels themselves light up without the need for a separate light source. This gives OLED screens perfect black tones, strong contrast ratios and low battery consumption. OLED elements are great for smartphones and tablets, making their way to large screen televisions and eventually becoming light panels for everyday lighting purposes.
As the patent holder of many important innovations in OLED technology, Universal Display collects royalties and resells the necessary chemicals when manufacturing these displays or lighting panels. Moving from portable, small screen devices to living room centerpieces is good news for this company’s revenue streams.
Universal Display’s revenues have grown an average of 27% annually for the past five years, while revenues have grown 16% annually. These numbers include a sudden slowdown in 2020 due to the COVID-19 pandemic, and the next five years should bring even stronger growth in the recovery. The company’s manufacturing partners are busy expanding their display factories, gadget designers of all levels are working on new ways to use flexible and transparent OLED displays, and Universal Display is far from finished developing patents to a greater extent of total OLED sales.
It is also a lucrative business. This stock has risen 460% in five years amid rising profits and cash flows. Universal Display has so much extra money that it started paying dividends in 2017. Quarterly payouts have since increased fivefold, but the annual dividend yield still looks ridiculously small at just 0.3% – as the stock continues to grow almost as fast. I’ll tell you who’s laughing now: It’s the investors of Universal Display, all the way to the bank.
OLED data by YCharts
So Universal Display offers you massive price gains, a deceptively strong dividend policy and a clear runway to generous and sustainable business growth.
What’s not to love?
This diversified chip maker is entering a new chapter
Billy Duberstein (Microchip Technology): Diversified chipmaker Microchip Technology is one name you should put on your Valentine’s Day list after posting a strong December quarter. It is no surprise, as it is well known that many semiconductors are seriously deficient. After two years of the US-China trade war and then the COVID-19 pandemic, chip makers have scaled back their capacity growth. However, new digital applications and an economic recovery are causing a significant increase in demand – more than chipmakers have in stock.
Microchip is a large and diverse semiconductor company that produces microcontrollers (53.7% of sales), analog chips (27.6%), FPGAs (7.3%) and licenses, memory and other services in a wide variety of industries. In the past quarter, Microchip’s revenue grew 3.3% from the previous quarter and 5% from the same quarter last year, but was likely limited by supply, not demand. In fact, mid-term management led to sequential growth of 7.5%, indicating accelerated sales.
Not only that, but demand is apparently so overwhelming that management has implemented a first-ever Preferred Supply Program for customers. With the PSP, customers can get priority on capacity if they book 12 months worth of orders that cannot be canceled or refunded.
Clearly, after several years of headwinds, we are entering a fragmentation cycle. But not only that, Microchip is also entering a new phase. Two and a half years ago, in mid-2018, Microchip acquired Microsemi and incurred a whopping $ 8 billion in debt, just on the eve of the downturn in the trade war. Although it was terrible timing, Microchip has since paid off $ 3.24 billion of that debt while keeping its dividend.
Management says it plans to bring its leverage ratio (net debt / EBITDA) below three by the end of the year, after which it would investigate buybacks. Management also just increased the current 1% yield dividend by 5.8%, and plans to increase it on a quarterly basis as it reduces leverage this year.
A company with less debt and rising dividends amid a semiconductor boom sounds like a good mix to me this Valentine’s Day.