2020 was nothing short of a disaster, but there were some positives. If you were invested in technology, a pandemic-fueled run higher by many stocks that benefited from employees working from home was one consolation prize.
The surge higher for some of these tech names could continue into the new year. If you have $3,000 and time to wait, three of our Fool.com contributors think Magnite (NASDAQ:MGNI), Roku (NASDAQ:ROKU), and Dell Technologies (NYSE:DELL) could be worth some of your hard-earned money in 2021 and beyond.
Digital ads are far from spent
Nicholas Rossolillo: Advertising-technology platform Magnite was a 2020 late bloomer. A product of the merger between Telaria and The Rubicon Project, Magnite shares were down for most of 2020 before suddenly exploding higher following the company’s third-quarter report in November. The stock is now suddenly sporting a more than 220% gain on the year.
There could be more good stuff to come in 2021. On the surface, Magnite’s 12% year-over-year revenue increase in Q3 (when compared to Telaria and The Rubicon Project a year ago) isn’t particularly impressive. But the pace of growth is set to accelerate. Management expects revenue to be up 18% sequentially in Q4 over Q3. Another plus is that this is still a very small name in a massive digital-advertising industry.
In fact, even after its recent run-up, Magnite is just a $3 billion market-cap business. By contrast, its peer The Trade Desk — a buy-side platform for advertisers, versus a sell-side platform like Magnite, which helps content producers monetize their content — has a $45 billion market cap. And both of them pale in comparison to the mega-cap size of the advertising duopoly Alphabet and Facebook. Put another way, Magnite has ample room to grow, and even small waves in the global marketing industry, which encompasses hundreds of billions in spending every year, can tally up to big returns for this small player.
The table is being set for some wave making. Magnite is generating most of its growth in the last year from the connected-TV industry, but its digital data platform for content creators and advertisers could become increasingly important as consumer privacy gets more strict and prompts some needed changes, like no more application-activity tracking.
A rebound in advertising after the economic slump this year will also help. At less than 12 times trailing-12-month sales and quickly closing in on breakeven, shares look reasonably priced given the potential. I think there’s plenty more upside for Magnite in the years to come.
2020 was great, but hardly a record
Anders Bylund: Streaming services are quickly becoming the new normal distribution method for all sorts of media. This process started many years ago but was accelerated by the coronavirus pandemic in 2020. Many investors are still unsure what to make of this secular trend because they can’t tell exactly which media-streaming services will win or lose in the long run.
With Roku (NASDAQ:ROKU), you can invest directly in the booming streaming-media market without picking winners in the video, music, or podcasting sectors. It doesn’t really matter who wins the content wars because Roku benefits from the expansion of the market as a whole.
The stock has gained 164% so far in 2020, but that’s nothing new for Roku investors. May I remind you what the same stock did in 2019? Here you go:
That’s right. The stock that thrilled investors by nearly tripling in 2020 actually delivered even stronger returns in 2019, just raising far fewer eyebrows in the process. The pandemic lockdowns raised Roku’s public profile in a hurry but didn’t really change the company’s long-term business prospects.
This company is the leader in stand-alone video-streaming players, and also the leading choice when makers of smart TV sets need a proven software platform. Roku’s history stretches all the way back to the first set-top box that supported Netflix streaming in 2008, and the company has been sharpening its user-friendly platform ever since. It’s the kind of competitive advantage that other companies really can’t copy.
We’re witnessing the early days of a future industry giant here. I see no reason why the stock wouldn’t be able to double or triple again in 2021, and even then, that’s just the start of of long wealth-building story.
Work-from-home trends plus a hard catalyst should propel this stock in 2021
Billy Duberstein: Dell Technologies originated 36 years ago as a low-cost PC assembler in Michael Dell’s University of Texas dorm room. Yet over the course of several decades, Dell has since transformed itself into a massive tech conglomerate, especially following the massive $67 billion acquisition of EMC in 2016.
Next year, Dell is looking to partly “undo” part of that acquisition, which could unlock a tremendous amount of value. With EMC came a very large stake in hyperconverged software and cybersecurity firm VMware, which also has a minority portion of its shares publicly traded. Dell is considering a spinoff of its current 80.4% ownership stake in VMware to its investors, which would likely occur in or after September of next year, when such a transaction would become tax free to shareholders.
What’s remarkable is that the VMware stake alone is worth about $48 billion today, compared with $54.6 billion for Dell as a whole. That means the “other” parts of Dell are only valued at $6.6 billion. For reference, the non-VMware part of Dell made just over $7 billion in operating income last year. That means if the spinoff is quickly revalued to VMware’s current valuation, remaining shareholders are getting Dell at less than one times operating income.
Not only that, but every Wall Street analyst has a target price on VMware that’s higher than current shares. Additionally, while Dell’s core PC and server business isn’t the greatest in the world, it should remain stable or growing, as consumer PCs continue to benefit from the work-from-home environment, while the infrastructure-storage segment would benefit from an economic recovery and enterprise spending.
All in all, Dell is looking like a serious value in today’s otherwise frothy tech sector.