4 Unsung Tech Stocks That Should Outshine The Big Boys

How things have changed. Last year, the Big Five tech companies were riding high. You couldn’t go wrong with Alphabet (Google), Amazon, Apple, Meta Platforms (Facebook) or Microsoft. This year, rising interest rates and recession forecasts have brought these hotshots low. Last week, they were all down for 2022 by double digits. Only Apple has skidded less than the S&P 500, off 17% versus the index’s 18% loss. The worst performer is Meta, which has plummeted 71%.

Of course, some day the Big Five, or maybe four of them, will recover and resume generating ever-increasing earnings (not easy to do at the moment). And their stocks will rise anew. These companies provide bedrock services for this tech-driven age—with the possible exception of Meta, which is trying to reinvent itself as the master of the metaverse, a quest that may or may not be fruitful.

The trouble with this quintet is that they have entered that uncomfortable yet inevitable stage: They’re mature. In other words, they won’t rack up enviable earnings and revenue growths, with exponential stock increases to match.

How, then, can investors take advantage of the one sure bet in the business world, that tech will continue to expand? Answer: by buying newer, smaller tech players with promise. Many may be unprofitable now, but so were the Big Five for the most part when they started out.

One example is Udemy, a provider of online courses, a lot of them, numbering over 150,000. Let’s say you want to get proficient in Python, the widely used computer programming language. Udemy offers a welter of courses for this. While the education company can’t accredit you, receiving a solid grounding in a subject is a vital first step. You can look up reviews for a course and its instructor. You can pause the instruction and resume it at your leisure.

Udemy’s stock started out with a surge when it went public a year ago, hitting $31. Since then, it has fallen along with the rest of the market and is flat for 2022, fluctuating between $10 and $15. While unprofitable, Udemy has seen its revenue expand at a decent clip.

The cloud is where a lot of the tech action is lately, and Cloudflare is among the brightest lights there. This company allows customers to move seamlessly from one cloud service to another, without going through the bother of changing codes and the like. After it went public in 2019, the stock shot ahead along with the rest of the market, reaching $211 last November. Although it has fallen since, Cloudflare still is ahead of its offering price. And at $55, it is up almost threefold from its going-public price three years ago. Revenue since the offering has more than doubled at Cloudflare, which is in the red.

Iridium Communications is a satellite company that transmits both voices and data. Analysts expect it to report its first annual profit this year, given its fast-growing subscriber base. All three quarters thus far in 2022 have been in the black. Small wonder that the stock is up 25% this year. In May, Iridium landed a whopper defense contract, alongside General Dynamics, to build a satellite system that will detect and track enemy missiles.

Then there’s GlobalFoundries, one of the largest semiconductor contractors. Clients include Ford Motor, Broadcom and NXP Semiconductors. Global focuses on less-sophisticated chips, which are cheaper to make than the glam ones that capture all the attention. A big selling point for Global is that it has no plants in China, thus insulating it from any squabbles between Washington and Beijing.

The stock has had its ups and down but today is ahead 21% from its October 2021 offering price. Formed in 2009 as a spinoff from Advanced Micro Devices, Global has posted profits for the past four quarters amid burgeoning revenue. Its trailing price/earnings ratio, of 61, is pricey. Still, analysts expect its earnings to keep gaining, so the P/E should come down. Its forward multiple is a much more palatable 17.

These four stand a good chance of enhancing portfolios going forward. After all, tech is about the future.