The technology sector has been on a solid run this year. The COVID-19 pandemic has driven an unprecedented demand for connectivity, remote financial transactions, collaborations, and communication-related services. Consequently, the essential nature of technology has made tech stocks the “new defensive plays.”

Distribution of a coronavirus vaccine is looking like a real possibility for earlier next year. As a result, there are concerns among investors that the tech rally will fade by the end of this year. People are booking profits in anticipation of slow revenue growth for these companies next year as the need for their services potentially declines and with that so too their growth potential. However, major multinational companies are now planning to adapt the remote work-and-learn culture permanently.

According to a survey conducted in September, the percentage of workers around the world that is permanently working from home is expected to double in 2021; productivity has increased among stay-at-home workers during the coronavirus pandemic.

As the 5G revolution comes on, we believe technology stocks should continue their accelerated growth, even in a post-pandemic world. PayPal Holdings, Inc. (PYPL), QUALCOMM Incorporated (QCOM) and Roku, Inc. (ROKU) are three tech stocks that could offer attractive upside based on their solid fundamentals and strong earnings momentum.

PayPal Holdings, Inc. (PYPL)

PYPL is one of the most popular digital payment technology platforms that enables digital and mobile payments on behalf of consumers and merchants worldwide. It has more than361 million active users globally and is available in more than 200 markets around the world, enabling consumers and merchants to receive money in more than 100 currencies.

In line with the spike in the popularity of  crypto currencies in recent years, PYPL recently launched a new service enabling its customers to trade cryptocurrencies directly from their PayPal account. Moreover, PayPal Ventures invested $50 million in eight early-stage, Black and Latinx-led venture capital funds in October.

In the third quarter, PYPL added more than 15.2 million new accounts. Its top-line increased 25% year-over-year to $5.46 billion. The company witnessed a total payment volume (TPV) of $247 billion, growing 38% from the year-ago quarter. Merchant Services volume surged 40% and represented 93% of TPV. EPS for the quarter came in at $0.86, rising 121% year-over-year.

PYPL is witnessing a growth trajectory in domestic spending, and a shift to digital payments is one of the major trends that should only accelerate over the next few decades. Hence, analysts expect PYPL’s revenue and EPS to grow 18.7% and 19.3%, respectively, next year.

How does PYPL stack up for the POWR Ratings?

A for Trade Grade

A for Buy & Hold Grade

A for Peer Grade

A for Industry Rank

A for Overall POWR Rating.

You cannot ask for better. The stock is also ranked #2  of 46 stocks in the Consumer Financial Services industry.

QUALCOMM Incorporated (QCOM)

QCOM engages in the development and commercialization of foundational technologies and products that are used in mobile devices and other wireless products, including network equipment, broadband gateway equipment, consumer electronic devices, and other connected devices worldwide. It operates through two segments – Qualcomm CDMA Technologies (QCT) and Qualcomm Technology Licensing (QTL).

QCOM recently announced the deployment of the first-ever 5G millimeter Wave (mmWave) network at South Korea’s Kumoh National Institute of Technology, in collaboration with LG Uplus and LG Electronics. In addition, the company recently reported that its new Snapdragon 888 processor will take mobile gaming to “a new level that can match desktop-level gaming performance.” QCOM is set to release the processor in the next model of Android smartphones coming in early 2021.

QCOM delivered a top-line of $8.35 billion in the third quarter, representing 73% year-over-year growth, primarily driven by a substantial growth in the QCT segment. The company’s massive investments in the 5G network are benefiting its licensing and product businesses immensely as MSM (Mobile Station Modem) chip shipments increased 7% compared to the year-ago quarter. Non-GAAP EPS came in at $1.45, rising 86% year-over-year.

QCOM management believes that as the pace of disruption in wireless technology accelerates, the company will continue to drive growth and scale across RF front-end, Automotive and IoT adjacencies. Consequently, analysts expect QCOM’s revenue and EPS to grow 7.6% and 11.2%, respectively, next year.

It is no surprise that QCOM is rated “Strong Buy” in our POWR Ratings system. It also has an “A” for Trade Grade, Buy & Hold Grade and Industry Rank, and a “B” for Peer Grade. It is ranked #3  of 86 stocks in the  Semiconductor & Wireless Chip industry.

Roku, Inc. (ROKU)

ROKU offers streaming devices to deliver entertainment to televisions. The company also offers a Roku software developer kit that lets developers build a channel that streams their content to the TV. It provides advertising products and licenses under the Roku TV name and operates through two segments — Platform and Player. It provides its product and services through retailers and distributors, as well as directly to customers through its e-commerce website.

ROKU added Apple’s (AAPL) Airplay to 4K devices last month. It gives users a new workaround to stream HBO Max and other mobile apps. Also, in October, ROKU introduced its all-new Roku Ultra and unveiled the Roku Streambar for streamers looking to add powerful streaming and premium sound to any TV. On the software side, ROKU rolled out Roku OS 9.4 that offers customers new ways to access content quickly with a range of performance enhancements.

ROKU reported impressive third quarter results with exceptional account growth. Active accounts rose 43% year-over-year as the company added 2.9 million new accounts during the quarter. Total net revenue increased 73% year-over-year to $452 million, as streaming hours rose 200 million hours to 14.8 billion, and average revenues per user increased 20% year-over-year to $27. EPS for the quarter came in at $0.09, compared to the year-ago loss of $0.22 per share.

Cord-cutting has seen huge momentum in recent years as millennials increasingly are streaming content rather than watching it on broadcast or cable TV. ROKU has delivered strong growth in ad business, particularly relative to the overall TV ad market, which was down. Hence, analysts expect revenues and EPS to grow 37.7% and 27.3%, respectively, next year.

ROKU’s POWR Ratings reflect this promising outlook. It has an overall rating of “Strong Buy” with an “A” for Trade Grade, Buy & Hold Grade, Peer Grade and Industry Rank. Among the 30 stocks in the  Technology – Hardware industry, it’s ranked #3.

Want More Great Investing Ideas?

9 “MUST OWN” Growth Stocks for 2021

Are Stocks Stuck @ 3,700

Top 12 Stocks for 2021

PYPL shares were trading at $212.19 per share on Thursday afternoon, up $1.39 (+0.66%). Year-to-date, PYPL has gained 96.16%, versus a 15.62% rise in the benchmark S&P 500 index during the same period.

About the Author: Sidharath Gupta

Sidharath’s passion for the markets and his love of words guided him to becoming a financial journalist. He began his career as an Equity Analyst, researching stocks and preparing in-depth research reports. Sidharath is currently pursuing the CFA program to deepen his knowledge of financial anlaysis and investment strategies. More...

More Resources for the Stocks in this Article