Our economy is transforming more rapidly than perhaps ever before. I often post about new technological breakthroughs and newsworthy topics, but today, I want to highlight five digital winners that all investors should take a deep look at. The best part is that shares of many of my favorite companies are finally pulling back from their record highs.
Broad stock market pullbacks are an opportunity to buy these businesses at a discount, and that is a good thing.
There is some debate about the state of economic recovery, tech valuations in general and even systemic issues brought to light by the current GameStop Corp. (NYSE: GME) short squeeze.
Bearish investors warn that mobs of online traders have exposed a flaw in the orderly operation of capital markets.
Related Post: The Digital Transformation Isn’t Going Anywhere
That’s probably an oversimplification. Short selling — the process of selling shares that you don’t own and then hoping to buy them back in the open market at a lower price — is supposed to be dangerous.
Hedge funds that have been short are getting hurt. It happens.
Longer-term investors should focus on the big digital transformation themes that are the foundation of this service.
These trends are not going away. They are only getting started.
Just look at Ford Motor Company (NYSE: F). Managers announced a new deal with Alphabet, Inc. (Nasdaq: GOOGL) on Monday to bring over-the-air software updates to future vehicles. These updates will add features and help with predictive maintenance in addition to bringing digital conveniences like integrated Google Maps and Assistant.
From the comfort of their vehicles, future Ford drivers will be able to operate their smart homes remotely, make payments and perform many other functions that are impossible right now. All of these are value-added features.
Alphabet, like many other transformative tech companies, is building massive new business verticals almost out of thin air. The Ford deal could be worth $300 million over six years.
Related Post: How to Spot a Digital Transformation Winner
There are plenty of companies touting stories like this. The digital transformation is playing out in every sector, from finance and healthcare to retail, energy and industrial manufacturing.
Here are five that hold promise:
1. Salesforce.com, Inc. (NYSE: CRM) is the quintessential digital transformation company. The San Francisco-based company makes real-time, cloud-based software to help enterprises manage customer service, sales, marketing, commerce and analytics.
It’s the dominant player in the global customer relationship management software sector, a market that is expected to reach $80 billion in sales by 2025.
2. Veeva Systems Inc. (NYSE: VEEV) is like Salesforce, but for the pharmaceutical sector. That distinction might seem slim; however, the pharma and biotech sectors are highly regulated. The software developed by Veeva includes automated regulatory filing and has become crucial to business efficiency industry wide. In other words, Veeva has built a big barrier to entry.
3. Sony Corp. (NYSE: SNE) camera sensors power most of the world’s smartphones, and the Japanese electronics giant is making a bigger push into automobiles, industrial robots and video.
Last month, the National Football League began filming parts of its broadcasts using a small Sony handheld camera connected to a 5G-capable monitor to deliver real-time images.
4. Taiwan Semiconductor Manufacturing Co. Ltd. (NYSE: TSM) operates the world’s biggest microprocessor manufacturing facility, serving Apple, Inc. (Nasdaq: AAPL), NVIDIA Corp. (Nasdaq: NVDA), Advanced Micro Devices, Inc. (Nasdaq: AMD), QUALCOMM Inc. (Nasdaq: QCOM) and even Tesla, Inc. (Nasdaq: TSLA).
The oddity is in a world where globalization is waning, the semiconductor sector is moving more toward outsourcing. TSM, given its scale and technical superiority, is in the best position to capitalize from this game-changing trend.
5. Mastercard Incorporated (NYSE: MA) isn’t so much a credit card business as it is a transaction processor. The company has no credit risk. Its sole business is processing tens of millions of transactions every day for a small fee.
The digital transformation play is that, slowly but surely, the world is running away from cash as a method of payment. Mastercard is positioned well to capitalize on that megatrend.
Investors wishing to play the digital transformation megatrend should see any weakness in these companies as buying opportunities.
Best wishes,
Jon D. Markman
