Top Tech Stocks for 2021 - Motley Fool

Feroldi: It is going to be, I think, three weeks since we had a Friday where we could do Industry Focus, so awesome to be back.

Feroldi: I think it's a great idea and of course, we couldn't finish out this week without talking about some tech stocks, because tech was, once again, the sector to be in in 2020.

Lewis: I think owning a few terrible companies is possible.

It's just a great mission statement here for your portfolio.

I think businesses across the board that saw really big step changes in trends that we're already going to be benefiting them.

It's hard to look at those gains and say, "Man, the opportunity costs and what I wanted to do with that money instead." But if I'm being honest, I think if I had held on, I would've been right for the wrong reason.

It's a regret in a way, but I think ultimately, I was true to what I wanted there.

You don't have to own every big winner to do well, and there are lots of companies that you just shouldn't own.

Lewis: I like your philosophy there, not having to own all of them.

Feroldi: I think you said something that's really worth double-clicking on.

Look at the total return, don't slight yourself there.

Feroldi: It's really easy to look backwards in time and play the "woulda, shoulda, coulda" game.

It's not that hard to look back and say, "Wow, Wayfair is like a 20-bagger off of its low?

I don't like to look backwards and say, "I did this wrong.

I did that wrong." I think it's OK to look back, see what happened, and see if you can learn the lessons from them that you can apply forward.

But I don't really have any big regrets.

We think that that's a really valuable element of what we do here.

Feroldi: I think that's a wonderful lesson, but that is an incredibly hard lesson to internalize?

If you like everything but the price is just insane, it's awfully hard to buy if you have any valuation vent at all?

Seems like a really great business, will you pay 200 times sales for a company that's worth $100 billion plus.

The good news is, if you really like Zoom, that stock has been falling drastically, so you might have another chance, Dylan.

If a company checks a lot of boxes for you, just get a little bit of skin in the game to put it on your radar and hope that the price declines, you can add your positioning over time.

Lewis: I think the reason I'm harping on that a little bit for myself is you have your watch list, and in my case, it's a physical list, sometimes it's a digital list in a Google Drive folder or something like that.

It's a lot easier for me to spot opportunities in stuff that I own or see success in stuff that I own, just because I'm regularly in the routine of checking that?

If you're only putting a small amount of money toward it, there's nothing wrong with really liking everything and then being like, you know what.

Feroldi: It's very, very difficult to do that with you, Dylan.

When I looked at my portfolio, I was like, what stock has done really well that I think is going to be permanently benefited because of COVID.

Beyond just the growing user numbers, which I think were boosted heavily from COVID, Pinterest also rolled out a number of tools during the year that are really going to make its platform much more attractive for advertisers as well as for posters.

But I think that the drumbeat away from Facebook and Twitter, is just going to get louder and louder, and Pinterest doesn't have to deal with any of those problems.

Lewis: Yeah, I think that ARPU comparison is probably one of the most succinct and compelling thesis you can have on a company?

If you think Pinterest is going to ultimately grow to match the worst most prevalent social media company, that means that they still have a 2.5X on their current ARPU.

I've seen the power of the platform in real-time, where my wife goes on, she looks at some image she's liked and she is like, what about this, and it's like, OK yeah, that makes sense for our life, let's buy that thing.

Lewis: Yeah, I'm interested in that growth in the age under-25 element, Brian, because I think that that's a little bit of like a narrative shifting data point for a platform like Pinterest?

We're going to leave it at that, so I don't step at it and say something that's the wrong label.

Feroldi: I think that's completely right.

I don't think it's crazy.

Lewis: I think it's helpful to take that valuation and not just look at it as a multiple on earnings or sales, but look at it overall and how it stacks up to some other social media companies.

When you factor in the ad load coming, them getting better and better about bringing advertisers in, there's a lot to like and it's not very hard to see this business being multiples bigger five years from now.

Feroldi: To your point, Facebook is worth $755 billion and I still think that number is going to go up too, by the way?

So yes, I don't think Pinterest will ever match Facebook's size and scale, but is there room for it to grow between $40 billion and $800 billion.

Lewis: Yeah, I think them being a $100+ billion company in five-years is not hard to forecast?

We like easy, we don't like hard.

For the folks that are not super familiar, it's the company that's formerly known as TASER, they rebranded to reflect the fact that they are focused on their Axon body cameras and the Evidence.com cloud storage business.

Lewis: I think that's right, yeah.

I think the body camera and the cloud storage is only going to become a larger part of this company going forward.

I think importantly, Brian, for me with this one, it's a really easy company to get behind.

Really, when I look at a company like Axon, what they're trying to do, they're trying to save lives, carry out more fair and equitable justice, and they are trying to add accountability and provide an unbiased record of what happens when things happen.

It's just a win-win all around.

Feroldi: I like to look at the softer side of investing things, and Axon here is one of Brian Stoffel's biggest holdings and investments.

It's no stretch I think to call this company, the Apple of law enforcement.

The reason I wanted to pitch one Brian, is I think there are probably a lot of folks out there that look at the tax base and are really scared of some of the valuations that they're seeing right now.

I look at this company and I say, there are a lot of elements of it that are exactly what you want in a tech business.

You have high-margin revenue coming in, it's really sticky.

What I really like in their case though, is this is something that law enforcement needs to have.

They're not going anywhere, and they're only really going to be adding customers.

I don't see this going away.

Really, no matter what happens, it's I think it's the new normal.

Feroldi: Yep, I think margins are going to grow too as their software offering gets out there and becomes more popular.

This is a company that purposely was profitable, and then went backwards as it invested aggressively to both develop its software capabilities and get them out there into police offices for, I think, free for the first year or something like that.

I feel like it's only fair.

I will be a shareholder when I'm able to be a shareholder, I already own Axon, and this third company I'm going to name, I own, I believe you might own it as well, and that is MercadoLibre (NASDAQ:MELI).

It has been a huge winner, basically, no matter how far back you look, I don't see that ending anytime soon.

Some of that is me putting the money behind it, but a huge chunk of that is really just the share price appreciation, the fact that the business has continued to execute.

It doesn't really matter what core business metric you look at, everything went off in 2020.

I look at this and I say it's a business that was already experiencing adoption, Brian.

If you want to go really exciting, despite this company being one of the biggest winners in the market over the last 10 years and having been a monster, I think multi-hundred bagger, since coming public, it's an $84 billion business.

I look at this and I say, it's easy.

It's really easy to see this company being much bigger in three years, five years, 10 years.

I don't see a lot that's going to disrupt the thesis.

Feroldi: That's right.

But like you, I think five years from now, 10 years from now, this company will be bigger.

This is a business where you have to look, I think, at the key business metrics and really follow those to get a sense of what is going on.

That's a great way to end this on, Brian, because I'm sure a lot of folks look at the stock price charts for these companies and say, oh, come on, you're telling me to pick up shares of this thing.

It's incredibly hard to say, "I'm going to buy this thing at $70 today, but I could have bought nine months ago at $10." But you have to be willing to do that if you want to buy into the best growth stocks.

Lewis: It's part of the mindset when it comes to investing, it's just what you have to suffer through.

Feroldi: I think that's right, Dylan.

I think that's going to be a fun basket to track in 2021.

Feroldi: That's a motley group of stocks and we would have no other way, right.

Lewis: Listeners, that's going to do it for this episode of Industry Focus.