Uncertainty has descended once more on Wall Street. This makes it difficult to find good stocks to buy. But this doesn’t mean that there aren’t trends that still carry upside potential while we wait for these short-term disruptions to fade.
The world has become addicted to tech, and we now depend on it more than ever. From cells phone to home phones, nothing runs without computers in the background. Because this is a trend that is not likely to reverse anytime soon — pending a zombie apocalypse — tech stocks will remain in demand for decades.
All kidding aside, the movement from analog to digital is fast-paced, and there is only a short list of companies who supply the brains and the infrastructure needed. These three tech stocks are proven winners and will continue to perform well for the next few years. This is because the overall fundamental thesis is still bullish in spite of the worries that are littering the media’s ticker tape.
These three have been the main drivers so far and are still best set up to continue to dominate their respective competitors. Amazon (NASDAQ:AMZN), Advanced Micro Devices (NASDAQ:AMD) and International Business Machines (NYSE:IBM) are three likely winners for years to come.
Almost nothing happens on the web these days without touching the Amazon Web Services servers. Therefore, AMZN stock is likely to remain in control of its own destiny for many years. This is a hyper-growth company that has never stopped being a startup. Amazon stock will continue to outperform the equity markets in general, in spite of its high price.
From a valuation perspective, it has never been cheap, but management backs it up because they continue to deliver. The bottom line doesn’t matter as much when AMZN continues to deliver astonishing growth and open up new income streams.
There is technical risk from the charts. If AMZN stock falls below $1,750 it can retest $1,620 fast. This is a momentum stock, so it moves quickly in either direction. Should that happen, it won’t change the overall thesis of the stock.
Conversely, above $1,840 the bulls can trigger a rally to fill the gap to $1,975 per share.
AMD stock has been the champion of all chip stocks for a while, although it stayed in the shadows of Intel (NASDAQ:INTC) for decades. But now AMD shines bright and casts its own shadow over the whole industry. Last year, when stocks across the sector were falling, Advanced Micro Devices finished up 50%. This outperformance continues into 2019.
Year-to-date it is still heads and shoulders above everybody else. Perception counts, and for most experts on Wall Street, Advanced Micro Devices CEO Lisa Su has the benefit of the doubt there. As long as investors believe that she has steered the company into the best wind possible, dips in AMD stock are opportunities to add to the longs.
Valuation of AMD is not cheap — but you get what you pay for given the performance of the stock itself. Conversely Intel and Nvidia (NASDAQ:NVDA) have not recovered their mojo after falling from grace. They no longer get the benefit of the doubt on Wall Street like AMD.
Technically the AMD stock posture is bullish. It has been setting higher lows while it attacks the closing all-time highs. This is in spite of tremendous nervousness on Wall Street. Should these fears abate, the AMD stock breakout is all but a guarantee.
IBM stock is a conundrum for me. I do not like the management because International Business Machines has lagged so far behind other mega-tech stocks in making the transition into the world of subscription models. But I am willing to give it a pass this time because technically, the stock has fallen into support. So if the markets recover from this ongoing geopolitical tizzy, IBM stock may have some short-term upside. This could also serve as a decent entry point into the speculative play on artificial intelligence.
For decades, IBM has told us that it is the leader in this sector of artificial thinking. If that’s the case, then as artificial intelligence becomes more ubiquitous in our day-to-day lives, IBM will start reaping the rewards from its decades-long efforts in the field. These benefits should then materialize into its stock.
Owning IBM at these levels doesn’t carry a lot of frothy risk. It sells at a modest price-to-earnings ratio of just over 10 and pays a 4.8% dividend yield.
Although there is a great chance that all three will be winners, I prefer either AMZN or AMD stocks over IBM. This is because they have already earned their place in the new order of the tech world. All that AMZN and AMD need to do is continue on the same path. The IBM success story will require blazing a new path.
Since the equity markets are near all-time highs and we have so many geopolitical risks looming, there is no rush to bet all your chips at once. Patience is a virtue — especially under these circumstances.
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