Some stocks are great because they have found products or services that customers need and they deliver them with consistent quality and attractive pricing. Many of these companies have been around for decades, some for more than a century.
Given the kind of economic cycles that we’ve seen over say, a hundred years, these companies have learned how to grow — and sometimes survive — just about any economic challenge.
But next gen stocks are also worth considering.
These “next generation” companies arrived on the scene at the point of a technological shift, where the way we buy, communicate, work or play shifts significantly.
I’m talking about the digital age. These are the companies that are dominant players in technologies that have and will continue to change the way we live for decades into the future. This includes popular themes like the 5G stocks my colleague Matt McCall is an expert in.
Some of these next gen stocks are already household names, but that doesn’t make them less important and valuable:
- Activision Blizzard (NASDAQ:ATVI)
- Telefon AB LM Ericsson (NASDAQ:ERIC)
- Xcel Energy (NASDAQ:XEL)
- Jack Henry & Associates (NASDAQ:JKHY)
- Microsoft (NASDAQ:MSFT)
- Amazon (NASDAQ:AMZN)
But there are also some stocks here that may surprise you. Let’s take a look at why these are the best next gen stocks to consider buying now.
Activision Blizzard (ATVI)
One thing that will certainly have long-lasting consequences to our behavior will be the fact that going out and about has become a relatively risky thing to do.
Seeing friends, going out to dinner, traveling, all have significantly bigger concerns than they have had previously. And that goes for young people in particular.
Activision Blizzard is one of the leading interactive entertainment companies. It sells video games not just for consoles, but online and mobile gaming as well.
While the oldsters might not get this, it’s a big business with younger demographics. And since you can play and communicate with others if you like, it’s a way to stay mentally active and socially connected all from the safety of home.
And with schools going virtual — even on college campuses most classes are online — it will be an even more important source of socializing and blowing off steam.
ATVI stock has had a strong run — up 67% in the past 12 months — it’s still trading at a price-to-earnings ration that’s slightly above the S&P 500 average, and has a price-to-book value that matches it.
Telefon AB LM Ericsson (ERIC)
The buildup to the dotcom era was a heady time. It was a watershed for technology. Not only did we begin to see the potential of the internet but we also tapped into the power of mobility.
And one of the leading companies changing the mobility paradigm was ERIC. Back then, it did it all — it sold the equipment that built the first mobile networks around the world, and it also was one of the world’s leading mobile phone makers.
After the dotcom bubble burst, ERIC was still a powerful company, but as more competitors entered the mobile phone market, it lost its dominance.
But that never happened with transmission and networking equipment. It remains a major player in the telecom sector today, especially in 5G technology. And given the chilly reception Chinese 5G firm Huawei is getting around the world, ERIC is a prime alternative.
It’s what InvestorPlace’s chief technology analyst Matt McCall would call a builder on the “5G Highway.” Only, the stocks he narrows down in his 5G Highway Super Portfolio are the lesser-known players that will use this technology to drive the biggest advancements our society has ever seen.
While its P/E is sky high here after ERIC stock went on a big run in the past 3 months, its price-to-sales and price-to-book ratios are absolute bargains. What does that mean? It means there’s a lot of money betting that ERIC is a 5G winner and it has the products to back it up.
Xcel Energy (XEL)
It may be odd to think about a middle America utility as a next gen stock pick. But it’s important to think outside of the box when seeking income.
Energy — how we generate it and how we store it — has become a very big deal. And XEL has been on the leading edge of next-gen energy thinking for more than a decade.
It has 3.3 million electricity customers and 1.8 million natural gas customers in Minnesota, Colorado, Michigan, New Mexico, the Dakotas, Texas and Wisconsin.
In 2005, XEL was the first utility to commit to 100% carbon-free electricity by 2050, with an 80% reduction by 2030. By 2019, it had reduced its carbon footprint by 44% from 2005 levels.
This concept seemed pretty fanciful at the time and sounded more like good PR than pragmatic business sense. But it’s working. And now demand for renewable energy is soaring. All of that makes this one of the next gen stocks you should be thinking about but likely haven’t been.
Plus ESG (Environment, Social, Governance) investing is becoming a very big deal with institutional investors and pension funds. XEL stock is a prime example.
And the best thing is, the novel coronavirus pandemic has meant investors have skipped over “boring” utilities, so the stock is a bargain. That’s even after a 16% run in the past 3 months. It also sports a 2.5% dividend.
Jack Henry & Associates (JKHY)
If you use a community or regional bank, you have probably used a Jack Henry product.
It started in 1976, helping community banks and credit unions automate their core banking systems where all the account data and customer data come together. And since that time it has continued to provide these products, services and support for U.S. banks and credit unions.
Right now, financial institutions are going through the digital transformation that we have seen happen in retail and other sectors of the economy. And the big money center banks are breathing down community financial institutions’ necks as well as upstart alternative financial institutions that are competing for the same revenue that banks have lived off of.
That means these lifeblood institutions for American communities have to step into the digital age and stay relevant. JKHY stock is built to do just that.
There are a handful of companies in this space but some of them are global and many have been bid to the sky. JKHY is still relatively cheap and it has sold off a bit after a mediocre Q2 earnings report.
It’s still up 20% in the past 12 months and has a steady 1% dividend.
Microsoft (MSFT)
Yes, this is an obvious choice for an article on next gen stocks to buy.
But regardless, MSFT stock has earned the right to be here. And there was a time not too long ago — in the early 2000s to be exact — when this company was not an obvious choice for this kind of list.
Back then, Microsoft had been beat up by the U.S. Department of Justice on antitrust issues and was trying to build out its products to establish a more diverse revenue base. But it wasn’t going well.
But in 2014, Microsoft promoted Satya Nadella to CEO, the third person in the job in the company’s 45-year history. He made a series of bold moves that have taken the company from loser to bruiser in just 6 years.
Now the company is a powerhouse in the cloud computing market. It has changed its software revenue model to make it a consistent cash flow king, and it has become a leading gaming and hardware company. It now has a $1.6 trillion market cap.
MSFT stock is up 52% in the past 12 months yet trades at a P/E of 36. And it even delivers a near-1% dividend. Safety, growth and stability are a winning combination in a frenetic tech sector.
Amazon (AMZN)
No surprise here. This company has gone from humble online bookseller in the mid-1990s to a company that has its tendrils in nearly every aspect of consumers’ (and corporations’) daily lives.
It’s the epitome of next gen stocks to buy. It’s the prime disruptor.
And it continues to look for more opportunities to build out its empire.
Its Amazon Web Services (AWS) cloud computing division is a massive cash cow that allows the company to explore new opportunities as well as shore up growing divisions.
And its management is very skilled at testing new concepts without committing too much money and time into them until they prove meaningful. Most important, they are disciplined at killing unsuccessful efforts and examining what worked and didn’t work so they can redeploy the successful elements.
Its e-commerce model was the perfect solution for the pandemic and AMZN stock is reaping the rewards — it’s up a whopping 80% in the past year. It’s expensive, but its long-term growth is assured.
— Neil George
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Source: Investor Place