Tech companies shot higher than most others from their March 2020 lows as it became clear that their businesses were better suited to – even benefitted from – the shift to “work from home.” Lately, many tech names have fallen well below their recent highs as money rotated to value companies that were seriously hurt by the pandemic like cruise lines, hotels and airlines – the shares were cheap, but the companies had poorer fundamentals and less certain outlooks.

The tech share price drops would have made sense if company earnings were poor … but the opposite has been true: for many big tech companies, the fundamentals have never looked better. Some are reporting their best results in years. Most show little sign of slowing and should be solid long-term investments.

Despite their size, leading companies like most big techs continually grow their revenues and earnings. Skepticism comes from the belief that their main product lines are mature … but their innovation continues, and many lesser-known products or services show signs of rapid growth or are on the verge of changing entire industries.

Here are several stocks we currently own in the Elevate Enhanced Global Equity Pool. Short-term market gyrations notwithstanding, we believe these will continue to be great businesses to own over the coming years.

Amazon

7-year average return: 44%

One of the largest Mega-Cap stocks, there’s no reason that Amazon can’t continue to dominate in the coming years. It is one of the two highest R&D (research & development) spenders in the world (Google is the other), and as a result the company still has a growth-oriented mindset. A return to in-store shopping may cause it to take a hit on the E-commerce side of the business, but E-commerce isn’t going away, and Amazon still has international markets – which used to be one of its weaknesses – that have now opened up more to E-commerce. Amazon has also positioned itself so that this doesn’t have to be the core of their business. North American e-commerce accounts for 61% of Amazon’s revenue today, but Amazon Web Services (AWS) accounts for 59% of operating income vs 41% from E-commerce. While not as well recognized as their E-commerce division, AWS has positioned Amazon to continue the growth we’ve seen from the company for years.

Apple

7-year average return: 32%

Apple has diversified from laptops and smartphones. R&D and innovation has led it to create a variety of services and new income streams. Apple TV, Apple Pay and Apple Music are all competing for large markets. Revenues from activities like these rose 27% in the March quarter. “Wearables” and home accessories is another currently booming segment. AirPods, Apple Watches and HomePod speakers also saw significant growth in the first quarter. The company’s 5G products are near ready for launch, and Apple has increased US investment spending, preparing for long term growth through R&D in new sectors. New, and strong, product launches provide Apple with a strong short-term outlook, and the emphasis on R&D makes it a good bet for developing technologies. Apple has the potential to grow in so many different areas – it can focus on whichever segment is the next major innovation to achieve growth, while maintaining stable growth in established products and revenue streams.

Microsoft

7-year average return: 32%

Like Amazon, Microsoft’s calling card for growth over the coming years will be diversification, along with the emphasis on web services (like AWS). Microsoft is currently 2nd in the world behind Amazon in web service market share, and the entire industry is growing rapidly with 35% year-over-year growth this last quarter. The Company has placed an emphasis on augmented-reality headsets, an industry that could become the next big thing in the very near future. For example, the U.S. Army just placed a $22-billion contract with Microsoft for this technology. Augmented-reality headsets have applications across sectors, and Microsoft is poised to take advantage.

Constellation Software

7-year average return: 34%

Constellation has a “Buy & Build” business model. It achieved its growth via its 300-plus acquisitions, focusing primarily on niche market software that has very little competition. Its business is not buying and selling companies but acquiring and improving them. Over the last 10 years, Constellation’s revenue from maintenance contracts for its niche software have grown from 15% to almost 70% of their total revenue. This has resulted in consistently strong EPS growth. Constellation is adapting their strategy to its current size and a shift to larger acquisitions will make a difference in their revenue. We don’t expect the same explosive growth that we’ve seen from them over the past decade, but stable revenues from its current acquisitions and a relative lack of competition means Constellation can continue to deliver growth while operating at a larger scale.

Nvidia

7-year average return: 67%

Nvidia made a name for itself through the use of its microchips in consumer electronics. Now the company is looking to the future by providing chips for Web Services, AI, data centers, and driverless cars, as well as pursuing vertical integration in the sector by expanding into CPU’s. Nvidia is already partnering with Amazon’s AWS to supply chips for its datacenters, with autonomous vehicle manufacturers for their chips to be the “brain,” and have even increased the performance of their historically strong graphics processors in the video games sector. Steady performance upgrades in its historical markets and the opportunity to be at the center of the decade’s biggest tech innovations makes Nvidia a rare lower risk, high growth stock holding.

It’s not a tech stock, but another of our holdings is …

Franco Nevada

7-year average return: 19%

Franco-Nevada (FNV) is significantly different from the companies above. Most of its revenues are gold-related, so FNV can provide good protection (through diversification) against equity market volatility. Franco-Nevada’s streaming and royalty business model is a relatively secure way to invest in gold while, to a degree, bypassing the cyclical nature of mining companies. The Company pays miners up-front for the right to purchase gold at reduced rates in the future – when a mine becomes operational. FNV is likely to underperform mining companies during rallies in gold prices, but they are also more protected than mining companies when gold falls. Further, Franco-Nevada’s business model means that gold downturns are when it can be most effective in positioning itself for long-term success, since it is during such downturns that miners need Franco-Nevada’s cash.

* The 7-year rate of return for stocks are annualized price returns and presented in Canadian dollars to April 30, 2021.

‍