Looking for a new flame this weekend? Growing technological stocks have a lot to offer in an investment relationship. The world is going digital, so there is no shortage of growth in the coming decade, and technology is also very profitable. Three contributors to Fool.com think PayPal Holdings (NASDAQ: PYPL), Universal performance (NASDAQ: OLED), en Microchip technology (NASDAQ: MCHP) is now worth your attention.
The intersection of banking and technology
Nicholas Rossolillo (PayPal Holdings): Digital payments are not new, but PayPal has done a lot of work to make them more mobile and touch-free. Since the digital wallet was disconnected from the former parent eBay back in 2015, the shares rose by more than 670% as the app became a modern household name.
But PayPal’s run is far from over. The fintech company is sitting on an increasingly important intersection between banking and technology. In a world that is being pushed further on the digital path, flexible options for sending money and making purchases are a must for consumers and businesses. PayPal and its subsidiaries (a mobile money movement app under the Venmo headline) provide the necessary tools, enabling e-commerce, touchless payments in stores, flexible payment terms (its interest-free “Pay in 4” now buy option later) and a growing ecosystem of related services.
During the last quarter of 2020, the payment volume with a PayPal service increased by 39% to $ 277 billion, the active accounts increased by 24% to 377 million and the revenue increased by 23% from a year ago. But what’s really powerful about PayPal’s business is the rapidly growing profit margins. Since its infrastructure for payment technology is largely paid for, new revenue is mostly profit. As a result, free cash flow increased 50%. With an average of more than $ 1 billion in cash flowing into its business each quarter, PayPal has the ability to invest heavily in new features on its applications and acquisitions (such as the purchase of e-commerce shopping Honey last year) .
For investors looking for a stock that they can hold on to for a long time (at least a few years, but the longer the better), PayPal ticks all the right boxes. Fintech will only become important in the foreseeable 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 performance): You already like products from this company, even if you do not know that you are using them. It’s high time to fall in love with Universal Display as an investment as well.
Do you know that luxury smartphone you use? Whether it’s an Android or an iPhone, it probably has an organic LED (OLED) screen. Traditional LCD screens shine a light through a grid of colored pixels. On OLED screens, the pixels burn themselves without the need for a separate light source. It gives OLED screens perfect blacks, strong contrast ratios and low battery consumption. OLED elements are ideal for smartphones and tablets, they are making television sets on big screen and will eventually become light panels for everyday lighting.
As the patent holder of many important innovations within the OLED technology envelope, Universal Display collects royalties and resells the necessary chemicals when manufacturing these screens or lighting panels. It’s good news for the revenue streams of this company to move from portable devices on small screens to centerpieces in the living room.
Universal Display’s earnings have grown by an average of 27% over the past five years, while revenue has increased by 16% per year. These figures include a sudden slowdown in 2020 due to the COVID-19 pandemic, and the next five years should deliver even stronger rebound growth. The company’s manufacturing partners are expanding their screen factories, gadget designers from all over the world are working out new ways to use flexible and transparent OLED screens, and Universal Display is not finished developing patents for a greater share of total OLED revenue.
It is also a profitable business. This stock has risen 460% in five years amid rising profits and cash flow. There is so much extra cash in Universal Display that he started paying out dividends in 2017. The quarterly payout has since doubled, but the annual dividend yield still seems to be only 0.3% – because the share is growing almost as fast. I’ll tell you who’s laughing now: these are Universal Display’s investors all the way to the bank.
OLED data by YCharts
Universal Display therefore offers you large share price increases, a deceptively strong dividend policy and a clear runway to spacious and sustainable business growth.
What’s not to love?
This diversified disc maker starts a new chapter
Billy Duberstein (Microchip Technology): Diversified disc maker Microchip Technology is a name to put on your Valentine’s Day list after posting a strong recent December quarter. This is no surprise, as it is widely known that many semiconductors have a severe deficiency. After two years of the US-China trade war and then the COVID-19 pandemic, hijackers reduced capacity growth. However, new digital applications and an economic recovery are leading to a huge boost in demand – more than chip makers have in stock.
Microchip is a large and diverse semiconductor company that manufactures microcontrollers (53.7% of revenue), analog chips (27.6%), FPGAs (7.3%) and licensing, memory and other services in a wide range of industries . In the past quarter, Microchip increased revenue by 3.3% in the previous quarter and 5% compared to the previous quarter, but was probably limited by supply, not demand. In fact, at the center, management led to successive growth of 7.5%, indicating that sales are accelerating.
Not only that, but the demand seems to be so overwhelming that management has implemented a very first customer preference program. The PSP allows customers to take precedence if they book 12-month orders that are non-cancellable and non-refundable.
Clearly, after a few years of wind, we are embarking on a chip-up cycle. But not only that, Microchip is also entering a new phase. Two and a half years ago, in mid-2018, Microchip acquired Microsemi, which in the process incurred a huge debt of $ 8 billion, just on the eve of the downturn in the trade war. Although it was a terrible timing, Microchip has since paid off $ 3.24 billion of the debt, while also retaining its dividend.
Management says it plans to bring its leverage ratio (net debt to EBITDA) below three by the end of the year, after which it would investigate buybacks. Management also only increased the current 1% dividend by 5.8% and plans to increase it quarterly as it withdraws going forward.
A less guilty company with rising dividends amid a semiconductor boom sounds like a good mix to me this Valentine’s day.