Are you considering adding stocks of big tech companies to your portfolio?
In today's article on investing ideas for the technology generation, I analyze the most recent financials of 3 big tech brands and why it matters to you!
Creating a Big Tech Watchlist
For this analysis, I have picked three big tech names: Microsoft (NASDAQ:MSFT), Cisco (NASDAQ:CSCO), and Intel (NASDAQ:INTC).
These were picked as all being dividend-paying stocks, and what I would call part of critical infrastructure in terms of the hardware, cloud services, & software they provide to many other companies, individuals, and government entities.
Dividends vs. Share Price
I am interested in the dividend yield rather than just their dividend amount, so based on the February 21 yields it looks like Intel is leading with a 5.55% dividend yield, Cisco with 3.13%, and Microsoft at 1.08%.
In this category, Intel is the clear winner.
Most Recent Quarterly Performance
Next, it is important to know what you are investing in, and in this case you are not just investing in a stock but the financial performance of that company!
Let's take a look at two metrics from the most recent Q4 results: revenue, and operating income.
- For Microsoft, based on their official results, they had a $30.2B revenue increase, or 18% across all their segments, with operating income increasing $13.5B, or 19%.
- Cisco's Q4 revenue came in at $13.1B, flat YoY, and net income of $2.8B which was a 6% drop YoY.
- For Intel, their Q4 revenue was $14B, down 32% YoY, with net loss of $0.7B, down 114% YoY.
In this case, the winner on both revenue & net income was Microsoft.
Creating a Tech-Driven Strategy
As someone who has worked in the IT sector, and written about it, I came to eventually ask the question.. how does one invest in it?
In my opinion, these three names are not going away anytime soon, especially due to their being so entrenched in the critical technology infrastructure of America & Europe especially.
With that said, if you are in the category of home-based online trader, one strategy to adopt with these three stocks is a buy-and-hold, and earn quarterly dividends, assuming they will keep paying dividends. This creates quarterly income, and adds income-producing assets to your portfolio if you do not currently have them.
The other option as an online trader clicking away at your trading app or platform, is to try and time the price movements and profit from the differences in price from day to day, or even within intraday trading. Each time you sell your position at profit, you are generating a capital gain.
A third option, if you own at least 100 shares of each stock, is to sell covered-call options, and earn income from those options, in the form of premiums. You will have to get approved by your brokerage first, before trading covered calls. I personally call this the easiest type of options strategy to learn, as your options sold are "covered" by the shares you own.
The beauty of most online trading apps through major, regulated brokerage firms today is that you can easily sell covered call options in just a few clicks, and earn premiums instantly! However, be sure to first do risk analysis planning to analyze the potential impact this strategy could have on your portfolio.
Building an Income-Focused Portfolio
To wrap up this topic, in a nutshell what we are talking about is a focus on income.. both the income performance of those three tech companies as well as the income generated by your portfolio for owning their stocks.
Along the way, various middlemen will take their cut of a trade, no matter how small it may seem, so be sure to inform yourself of any fees charged by your brokerage or third-parties involved in the trade execution, and the impact it could have on your net income. One example is the fee charged by your brokerage for selling a covered call option.
With big tech continually making headlines in the media in recent months, now is an opportunity for you to do a deep dive into big tech as a potential portfolio strategy, if you have not already.
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Disclosure: The author does not currently hold any of the companies mentioned, either individually or through his firm Albert Anthony & Company, nor makes recommendations to invest in them, as they are used for educational & informational purposes only.