Tech Companies That Will Be Around Forever
Ash is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
Like many people out there I love to invest in technology. There’s a hefty, resounding problem with investing in such an asset; it is unproven. Companies like Proctor and Gamble are proven; they have proven assets and they have proven ways to make money for the foreseeable future. Technology companies are not like Proctor and Gamble. Facebook (NASDAQ: FB) may be a high flying stock right now, but is there any way to know that it will continue on for a few decades? Not really.
Can technology and value investing go hand in hand? I believe they can. To be able to pull this off successfully is something that is quite difficult. One would have to know, or at least have a good idea of, the path of the future of technology. There are three key fields I can think of currently that will undoubtedly play a large role in the future. The real question then becomes which of these companies will survive and thrive, returning a profit on our investment?
The companies being represented in this article include Facebook; they will be representing the social media space, Google (NASDAQ: GOOG) who will be representing search and information, and 3D Systems Corp (NYSE: DDD) from the 3D print space. Both Google and Facebook are household names around the world, and 3D Systems is in the center of what is sure to be a game-changer.
Social networking will be a vital part of our lives over the coming years, and likely far into the future. I do not think that anyone can argue that. What they can argue is whether it will be Facebook leading the path, or something else. It does not matter who you are, you cannot control where the masses will go for their social connections. Facebook as a company has to tread lightly.
Treading lightly online is a hard thing to do. Do you recall social bookmarking site Digg.com? The site was at the pinnacle of its game, but after multiple changes to their platform, it eventually died. Replacing it, I would argue, was Reddit. Both sites were popular, but Reddit remained unchanged, and to this day its look has not had too many dramatic changes, the users love it. Facebook continues to come out with appearance enhancements that may, one day, alienate their user base. Treading lightly is a tough thing to do.
Financially, Facebook has the chance to make large lumps of cash. They currently carry a P/E ratio of 1829.5, meaning that the investors believe that large sum of cash will eventually come. In 2012, Facebook’s net profit margin was just 1.04%, their return on average equity was a lackluster 0.4% and their operating margin was 10.57%. Those are some low numbers for a company that people expect to take off in terms of profit.
Search & Information
Google has had a terrific year thus far. The company has gained just over 16% YTD bringing its total P/E ratio to 25.42. That P/E is not quite as high as that of Facebook, but it is well above the market. You all likely know this company for their search, but there’s so much more out there. They have the Android OS, Chrome and the potential that is Chrome OS, the impending driverless cars, and Google Glass. If I was to argue anything, it would be that Google is going to be the largest tech company in the world, and it will probably be the longest lasting.
Google has some neat numbers to show off to investors that include a 21.5% profit margin, a 25.4% operating margin and a satisfying 16.6% return on average equity. They are able to pull such impressive numbers because they are penetrating your life in countless ways. Whether it is search, cellular, or something else, there’s a very decent chance that Google has a place in your household, and that will continue to grow as time goes on.
3D printing is unquestionably taking off. By decade's end, we could all have one in our living rooms printing out our meals and props for daily activities. If you have not seen anything on this yet, then I’d suggest you head over to YouTube to look it up. It is, for lack of a better word, INSANE!
3D Systems put themselves right in the heart of 3D printing by providing customers personal printers, professional printers and production printers. This company’s printers can be used for anything, and investors know that!
DDD is currently trading at a P/E of 67.38, and their net profit margin is at a solid 11%. When it comes to earnings, it is projected that DDD will see a drop through 2013, but a huge rebound will be brought back come the close of 2014. 2012 EPS was $1.16, and it is expected to grow to $1.29 by the close of 2014, that is not as large of a gain as some companies, but it is still a gain.
These three companies are in the forefront of their respective technological fields. For me, the best bet out of the three on future performance many years from now is Google. Google has a brilliant business model, and they are starting down the path to some incredible diversification.
Facebook is a scary stock for me. I’m not sure that they can raise their profits enough to justify the price without alienating the user base. The selling of information in bulk and potentially a “pro” service are the only ways I can see them making enough from it.
3D will be big. Who is leading the pack when it becomes prominent is a bit of a tough problem. DDD is one of the market leaders now, and they have some terrific products. They could be a market leader in years to come, or they could be just another printer maker.
Ash Anderson has no position in any stocks mentioned. The Motley Fool recommends 3D Systems, Facebook, and Google. The Motley Fool owns shares of 3D Systems, Facebook, and Google and has the following options: Short Jan 2014 $36 Calls on 3D Systems and Short Jan 2014 $20 Puts on 3D Systems. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!