Bargain hunting for tech stocks
Could companies that make payment processing software offer big-tech growth prospects without big-tech prices?
- 02/17/2021
With technology companies leading the S&P 500® to record highs, finding tech stocks with both reasonable prices and strong growth potential is no easy task. But mutual fund managers who rely on rigorous research and practice careful stock selection may still be able to find those opportunities.
Rebecca Baker, manager of Fidelity® Select Software and IT Services Portfolio (FSCSX) says, "Great stories are not easy to find, but I'm excited about a handful of tech services firms that I consider underpriced based on my longer-term view of their earnings potential."
Baker points to Intuit (INTU), Ceridian HCM Holding (CDAY), and Square (SQ) as examples of companies with positive long-term fundamentals and valuations that she describes as reasonable.
In December, she added to the fund's holdings in Intuit, based on her belief that the company can sell services such as payment processing and payroll as part of its QuickBooks® accounting software and can gain subscribers for its TurboTax® offering—thanks in part to its recent acquisition of credit monitoring and personal finance service Credit Karma.
Baker says Ceridian's payroll-processing business is set to benefit as the company's customers increase hiring with the economy reopening from COVID-related shutdowns. She also believes that a new real-time payments service offered through the company's Dayforce app could boost Ceridian's profits over time.
Baker also expects innovations in payment technology apps to benefit payment processor Square. She believes the person-to-person payments technology in its Cash App will be difficult for competitors to replicate, and that Square has opportunities to add more services to its platform.
Fidelity® Select IT Services Portfolio held securities mentioned in this article as of its most recent holdings disclosure. For specific fund information, including holdings, please click on the fund trading symbol above.
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