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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. Please see the full company research reports for important disclosures on the companies 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. PAGE 1 OF 3 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. PAGE 2 OF 3 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 PAGE 3 OF 3 VMware (VMW – $87.03) www.edwardjones.com Member SIPC RES-8435P-A EXP 31 MAY 2018 © 2017 EDWARD D. JONES & CO., L.P. ALL RIGHTS RESERVED. Investment Risks