Amid all the big swings in the S&P 500 and other benchmarks, it’s natural for many investors to be worried. But as the adage attributed to Warren Buffett goes, sometimes it pays the most to be greedy when others are fearful.

So why not a tactical investment in select tech stocks that have managed to perform “less bad” than their peers lately — and could deliver long-term outperformance?

Obviously, this proposition comes with risk. As of Monday’s opening bell, the tech-heavy Nasdaq-100 NDX, -1.34% was down about 10% for 2022. And many big name stocks like Facebook parent Meta Platforms FB, -2.76% and streaming giant Netflix NFLX, -3.68% have done much worse.

But unlike these flops, the following five tech stocks all have significant earnings successes and real growth to look forward to. That means they could be poised to lead the sector’s comeback in the months ahead – or at minimum, hang tough even as weaker companies fall away.

Here they are:

Alphabet

A few years ago, plenty of investors doubted whether Google parent Alphabet GOOG, -0.36% GOOGL, -0.42% still had what it took to stay on top. Between antitrust actions and general fears that it was becoming “a conventional company,” this Big Tech giant’s stock lagged most of its higher-profile peers in 2019 and 2020.

It’s a different story in 2022. Not only has Alphabet stock avoided the deep declines of other growth names like Netflix, but it has slightly outperformed the S&P 500 SPX, -0.75% year to date – and is up 30% in the last 12 months, compared with just 15% for the benchmark index.

That’s in large part because Alphabet is on track to log a 17% increase in its top line this fiscal year, hitting more than $300 billion in annual revenue. Looking forward, Wall Street expects another 15% growth in fiscal 2023.

A big reason is that there is simply no better platform for digital advertising. Consultancy Zenith Media has estimated that of all global adspend, 60% of marketing budgets are dedicated to digital channels like the ones dominated by Google – with a greater share every year going into this category. On top of that, in 2022 global ad spend is expected to grow by 11%.

Small wonder that while stocks have run into trouble, Alphabet is going strong. And in the wake of an impressive fourth-quarter report, analysts at a host of firms upgraded to stock or reiterated their buy ratings. A new consensus price target of almost $3,500 per share (before any stock split) gives Alphabet more than 25% upside from here. Its recent outperformance indicates that investors may want to bank on this stock coming through.

Zeta

Never heard of Zeta Global Holdings ZETA, -1.60% ? It may be time to take notice of this small-cap tech stock. The roughly $2 billion software company that went public in June has defied gravity while so many other big names in the sector have fallen hard; it’s up an impressive 38% or so year-to-date.

There’s no shortage of buzzwords in the corporate description of Zeta, which claims to operate “an omnichannel data-driven cloud platform” powered by fancy artificial intelligence algorithms. In plain English, this enterprise software firm analyzes data points, including previous sales trends, to predict future consumer behavior. Think of it as a way to make sales teams smarter.

Demand is strong for this kind of add-on service across all sectors of the economy, and Zeta sales are set to surge almost 20% this fiscal year.

Admittedly, there were some doubts last summer about the company meeting lofty expectations. Its offer price of $10 was at the bottom of the proposed range, and the number of shares sold at the IPO were reduced. The stock then lurched down to a low of about $5.30 a share soon after the IPO.

But the share price has more than doubled from those lows and now trades above $11. Furthermore, it gained support from investors after a shrewd acquisition last year; the purchase of audience engagement company Apptness sparked a surge in the stock price of more than 20% over a single session in October.

With smaller tech stocks like this, outperformance is never a sure thing. But Zeta seems to have gotten through the growing pains of its IPO and has won back Wall Street. Considering its outperformance in at otherwise rocky time for tech, that should indicate the stock has real potential going forward.

Microsoft

One Big Tech stock that is holding strong is enterprise software giant Microsoft MSFT, -1.18%. Valued at more than $2 trillion and tracking more than $200 billion in annual revenue, this iconic firm has both unrivaled scale as well as significant continued growth potential that make it hard to pass up, regardless of volatility in the sector.

In the company’s latest earnings, reported in January, Microsoft beat on both the top and bottom line in a big way. One area that impressed was a 20% jump in revenue as record sales in both its cloud and PC segments showed the company’s continued dominance in these categories. The prospects for the current fiscal year are equally rosy, with projections of 18% revenue growth and 16% earnings growth.

Those earnings came on the heels of massive acquisition news, via a $69 billion offer for videogame studio Activision Blizzard ATVI, -0.45%. The largest deal in Microsoft’s 46-year history, the move has been applauded as a shrewd way to complement its Xbox arm with the addition of fan-favorite franchises like “Call of Duty” and “Warcraft”. The big-budget TV series “Halo,” based on Microsoft’s iconic game of the same name, is expected to premiere in March, adding an added layer of intrigue to the company’s greater focus on the business of videogaming.

There’s always uncertainty on Wall Street but Microsoft is as solid a company as you can find as one of just two stocks with a bulletproof AAA credit rating (Johnson & Johnson JNJ, -0.53% is the other). It also boasted more than $130 billion in cash at the end of fiscal 2020 and net operating cash flow of more than $76 billion in 2021.

Volatility doesn’t mean much with numbers like that, as Microsoft clearly has what it takes to weather short-term disruptions and continue to deliver on its long-term growth plans.

Fortinet

Every month or so, we’re reminded of the risks that come with a digital age through the latest hacking headlines and scandals. Just a few weeks ago, for instance, the Red Cross was hacked and sensitive data for more than 500,000 individuals was compromised.

It’s easy to get freaked out by these risks, but as an investor it’s important to also identify the opportunity – namely, that the constant threat of hacking creates a constant need for companies to protect themselves.

That’s where $51 billion digital security icon Fortinet FTNT, -3.09% can deliver. On Feb. 3, its fourth-quarter earnings topped Wall Street estimates with a 16% jump in profit on a 36% surge in billings. What’s more, bookings – an indicator of forward performance – jumped 49% year-over-year. Additional encouraging details come from full fiscal-year numbers, where the company finished with an impressive free cash flow of $1.2 billion, more than $3 billion in cash on the books and the purchase of almost $750 million worth of shares via its buyback program.

These are hard numbers that put the proof to the narrative that cybersecurity is a booming business. From a big-picture perspective, global spend is growing at a 15% annual rate, according to consulting firm Cybersecurity Ventures, and should hit a cumulative total of $1.75 trillion from 2021 through 2025. Yes, that’s trillion with a T!

Small wonder that this stock has surged almost 90% in the last 12 months. And while it has been volatile so far in 2022, it’s worth noting that over the few trading days immediately after that February earnings report the stock revisited its prior-all time highs before the uncertainty of the past week or so dragged it back down.

There’s risk here, as with all stocks right now. But the long-term growth narrative and impressive fourth-quarter numbers make Fortinet stand out from the pack.

Unity Software

Most investors don’t pay much attention to the ecosystem of specialized firms are supporting the videogame industry. The big names are obvious – like the aforementioned Microsoft, which manufactures the Xbox hardware, or Activision that publishes the final product. But up-and-coming stock Unity Software  U, -4.16%  is a fascinating way to play the booming videogame industry beyond just publishers and hardware makers, as it serves game developers across platforms, genres and mediums.

Some major titles that use the Unity platform include the hot 2021 release “Pokémon Unite,” which allows multiplayer gameplay on the Nintendo Switch console but also mobile devices like the smartphone. This cross-platform approach is increasingly a growth opportunity, as is Unity’s investments in virtual reality technology now that buzz about the “metaverse” is everywhere.

But don’t think this is all fun and games. The company delivered a knockout fourth-quarter and fiscal 2021 report in early February that sent the stock surging more than 15% in a single session.

Just a few stats of note: about 3.9 billion people viewed content created with Unity each month, revenue of $316 million was up 43% in the fourth quarter over the prior year, and full-year revenue topped $1 billion for the first time, and forward guidance exceeds Wall Street’s pre-earnings expectations.

The company is admittedly not yet profitable, so there’s risk here. But there is also massive potential – particularly as Unity has aggressively expanded its platform to serve clients outside of gaming.

 For example, Hyundai Motor 005380, +0.83% and Unity partner on a product that offers a digital rendering of physical factories to enhance plant management and productivity. eBay EBAY, -3.72% has partnered with Unity to offer virtual, interactive 360-degree views of products.

Throw in the recent acquisition of specia- effects company Weta Digital – a firm that assisted on “Avatar” and “Lord of the Rings” production– as yet another new and interesting area for innovation, and there’s a lot of potential paths for Unity to expand and thrive. 

If Unity can deliver results to clients outside the core videogame community, the already impressive revenue growth metrics will really catch fire.

Now read: 10 tech value stocks that at least 75% of analysts rate as a ‘buy’ right now

Jeff Reeves is a MarketWatch columnist. He doesn’t own any of the stocks mentioned in this article.

Source: finance.yahoo.com