Download Techonomics - Edward Jones

RES-8435P-A EXP 31 MAY 2018 © 2017 EDWARD D. JONES & CO., L.P. ALL RIGHTS RESERVED.
Techonomics
The Relationship between Technology and the Economy – and How to Benefit
1 Mobility 2 The cloud 3 Digital lifestyle
The only certainty with technology is it constantly evolves. Technological innovation has increased
productivity, which plays a critical role in economic growth. The technology sector has changed
a great deal from the 1990s, when it wildly outgrew other areas of the economy. Over the past
decade, however, the sector has matured, and now its growth is more closely tied to the overall
economy. But we still believe some technology companies can outpace the overall economy,
especially companies engaging in these three big trends: mobility, the cloud and digital lifestyle.
Spending on Technology Is Now More in Line with the Economy
20%
■
10%
U.S. GDP Growth
U.S. Tech Spending Growth
5%
0%
Tech Spending
Outpaced the
Economy
1
Mobility –
The Rapid Adoption of Smartphones and Tablets
In recent years, computing and communications have grown
together, resulting in the explosion of groundbreaking devices
such as smartphones, tablets and even wearable devices such
as glasses and watches. According to the International Data
Corporation (IDC), smartphone and tablet sales grew more
than 10% in 2015.* Now smartphones make up over half of all
handsets sold, and tablets are quickly approaching that same
milestone in the PC market. As a result of the proliferation
of mobile devices, more people are now accessing the Web
through mobile devices rather than PCs. In 2015 and beyond,
we expect a combined 5% to 10% unit growth in tablets and
smartphones as consumers shift away from traditional PCs
and basic phones.
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mentioned in this report. You can also contact a local Edward Jones financial advisor, or
write the Research Department, Edward Jones, 12555 Manchester Road, St. Louis, MO
63131, to receive a complete company opinion.
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2016
2015
2011
2010
2009
2008
2007
2006
2005
2004
2003
2002
2001
2000
1999
1998
-15%
2014
Tech and Economic Growth
Rates Are Converging
2013
-10%
2012
-5%
Investment Ideas
As more people continue to access
the Web through mobile devices, we
expect a shift in PC marketing spend
to mobile.
We believe Facebook (FB), the
leading social media website, will
continue to define the mobile
advertising industry.
We believe Broadcom (AVGO), a
leading provider of mobility chips, and
Apple Inc. (AAPL) will be the primary
beneficiaries of the rapid shift toward
connected devices.
Source: Bureau of Economic Analysis
■
15%
The Cloud A New Era in Computing
Cloud computing is the next
phase in the evolution of technology. It enables companies to
outsource complex computing
needs to third-party providers.
Cloud technology increases companies’ efficiency and ability to
use existing resources, therefore
reducing IT costs. According to
the IDC, worldwide spending on
cloud technology is expected to
grow roughly 20% annually for
the foreseeable future.
3
Investment Ideas
The cloud opportunity is still in its early stages, but we believe the
following companies have established promising positions with
key competitive advantages:
• Apart from being the leader in online retail, we believe Amazon
(AMZN) has become the dominant player in cloud computing
with more than 10 times the capacity of its next 14 rivals,
according to Gartner.
• We believe Microsoft (MSFT) will be a leader in cloud computing
as well, as it sets the stage for a highly integrated, seamless
cloud experience with Office 365 and Windows Azure.
• As the leading provider for virtualization software that enables
cloud computing, we expect VMware (VMW) to participate in the
cloud growth wave.
Digital Lifestyle –
Internet, Social Media and E-commerce Growth
We believe technology’s presence in our daily lives will only continue to grow, especially with the rapid adoption of the internet,
social media and e-commerce. Since 2000, the number of global
internet users has grown to 2.7 billion, but this is only about onethird of the world’s population, and we expect additional growth
of 10% annually.
Social networks, such as Facebook, LinkedIn and Twitter, provide
a new way for millions of users to share and discover information.
Facebook has surpassed 1.7 billion active users, who spend more
than 50 minutes a day across its products and upload hundreds
of millions photos daily. As more people around the world begin
using the internet and mobile devices, we expect about 5% to 10%
average annual growth in social media users over the long term.
From books, music and movies to hotel reservations, clothes and
toys, more and more consumers are replacing trips to the store
with the convenience of shopping online. With better pricing,
selection and convenience, we expect e-commerce sales to
continue to rise, with double-digit growth through 2017.
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Investment Ideas
• We believe Alphabet Inc.
(GOOGL) and Facebook (FB)
will continue to offer new
features that will increase our
reliance on the Web, leading
to strong revenue growth for
both companies. Google is the
world’s most popular search
engine, with 70% market share
and valuable properties –
YouTube, Gmail, Chrome and
the Android operating system
for mobile devices. We also
expect Facebook to expand its
already impressive user base
as social media grows around
the world.
• With e-commerce, we recommend The Priceline Group
(PCLN) with a Buy rating, and
we expect Priceline.com to
extend its leadership position
in the online international hotel
and travel industry.
RES-8435P-A EXP 31 MAY 2018 © 2017 EDWARD D. JONES & CO., L.P. ALL RIGHTS RESERVED.
2
Source
*International Data Corporation (IDC) – Worldwide Quarterly Mobile Phone Tracker (1/27/2014);
Worldwide Quarterly Tablet Tracker (1/29/2014).
The technology sector is subject to a number of risks, including
the following:
• Economic weakness that could lead to a reduction or delay
in IT spending
• A strengthening U.S. dollar that could make technology exports
less attractive
• Intense competition and pressure on pricing and profitability
Analyst Certification
I certify that the views expressed in this research
report accurately reflect my personal views about
the subject of securities and issuers; and no part
of my compensation was, is, or will be directly or
indirectly related to the specific recommendations or views contained in the research report.
Bill Kreher, CFA; Josh Olson, JD, CFA
Important Disclosures
Past performance does not guarantee future results.
Please see our research reports on individual companies for more
information on the benefits, valuation and risks of investing in
these stocks.
Actions for Investors: Build Your Portfolio
Review your stock portfolio with your Edward Jones financial
advisor and consider adding technology stocks where appropriate
for you.
We believe you should allocate 19% of your stock holdings to
technology stocks. Technology is an important part of a diversified
portfolio because it tends to perform well during good economic
times. But we recommend a balanced approach. Include a combination of stocks from each of the four subsectors: Software & Services,
Internet, Semiconductors, and Hardware. We recommend starting
with the Software & Services subsector because of its earnings
consistency and stock price stability compared to those of other
technology segments. Then, further diversify to the other three
subsectors, because industry performance is likely to vary.
All investment decisions need to take into
consideration individuals’ unique circumstances
such as risk tolerance, taxes, asset allocation and
diversification.
The firm has organizational and administrative
arrangements in place to prevent and avoid
conflicts of interest with respect to research
recommendations.
It is the policy of Edward Jones that analysts or
their associates are not permitted to have an
ownership position in the companies they follow
directly or through derivatives.
Analysts are not compensated based upon investment banking services transactions or activities.
This publication is for information only. While the
statements contained in this report are taken from
sources that we believe to be reliable, we do not
guarantee their accuracy. However, this statement
does not apply to disclosures concerning Edward
Jones or analyst certification. Some of this
information is provided by an independent
research service. The issues mentioned herein
are subject to price change without notice.
Additional information is available upon request.
Diversification does not guarantee a profit or
protect against loss. You should make investment
decisions based upon your unique objectives, risk
tolerance and financial circumstances.
Investing in equities involves risks. The value
of an investment will fluctuate with changes in
market conditions, and you may lose some or all
of your principal.
Buy- and Hold-rated companies mentioned in
this report followed by Edward Jones. Prices as
of January 30, 2017.
Alphabet Inc. (GOOGL – $823.83)
Buy-rated Technology Stocks
Amazon (AMZN – $830.38)
Analog Devices (ADI – $76.28)
Software & Services:
Apple (AAPL – $121.63)
CHKP, MSFT, ORCL, PYPL, V, VMW
Broadcom Limited (AVGO – $203.22)
Check Point Software (CHKP – $98.45)
Internet:
AMZN, FB, GOOGL, PCLN
Facebook (FB – $130.98)
Microsoft (MSFT – $65.13)
Semiconductors:
Oracle (ORCL – $40.23)
ADI, AVGO
PayPal (PYPL – $39.86)
Priceline Group (PCLN – $1602.31)
Hardware:
Visa (V – $83.70)
AAPL
Bill Kreher, CFA
Josh Olson, JD, CFA
Senior Equity Analysts
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VMware (VMW – $87.03)
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RES-8435P-A EXP 31 MAY 2018 © 2017 EDWARD D. JONES & CO., L.P. ALL RIGHTS RESERVED.
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