
Outlook 2016: What Lies Ahead for These 6 Big Tech Stocks?
If you're an investor seeking growth momentum, the technology sector has probably caught your eye. The Technology Select Sector SPDR ETF (XLK) - Get Report is up 6.5% year to date, compared with the 2.1% year-to-date gain for the S&P 500.
Will this momentum carry into 2016? Let's take a look at the biggest players in the tech universe: Apple (AAPL) - Get Report , Microsoft (MSFT) - Get Report , Alphabet (formerly named Google) (GOOG) - Get Report (GOOGL) - Get Report , IBM (IBM) - Get Report , Cisco (CSCO) - Get Report and Facebook (FB) - Get Report . Most of these technology bellwethers have reported positive operating results this earnings season as they pursue "differentiation strategies" that drive growth. The prospects of these big-name stalwarts appear sanguine next year.
To more precisely gauge what the future holds for these companies in particular and the tech sector as a whole, let's drill down for answers.
As usual, corporate earnings will decide the course tech stocks take in 2016.
Analysts predict an upswing in growth in earnings per share for these companies. Current predictions are for Apple to finish this year with a 7% increase in EPS and for EPS to grow even more -- 9.5% -- in 2016. Alphabet, meanwhile, is expected to see EPS growth of 15.2% this year and 18% next year.
Microsoft could see the smallest acceleration in growth among these stocks. Analysts expect EPS growth of 12.2% for 2015 and 12.7% in 2016. IBM is expected to see its EPS drop 9.7% this year but then grow 1.1% near year. Networking giant Cisco is also expected to rev up its earnings growth, from 4.1% to 6.5%.
The biggest jump likely will be for Facebook, led by Mark Zuckerberg, the world's richest person under 35. On average, analysts expect the company's EPS to grow 16.9% in 2015, but they expect growth to accelerate to nearly 33% in 2016, even as sales growth slows.
For most tech giants the fundamental growth driver will be the ability of their executives to develop a forward-thinking and customer-focused vision.
Apple's Cook has indicated that the company expects benefits from upgrade programs, the Android switcher rate, iPhone's sales momentum in emerging markets and large-scale LTE. These factors will have a big impact on the next year for Apple.
For Microsoft, 2016 will hinge on its ability to further strengthen its best offerings and reduce weaknesses in product categories that have historically fared badly. Microsoft is great at Office and selling to corporate clients.
The search engine business, as we know, is literally owned by Alphabet (Google), with Microsoft's Bing way behind. Also, Microsoft has had a forgettable experience with its acquisition of Nokia's devices and services businesses and the Windows phones. This market belongs to Apple, and unless Microsoft can do something that totally "disrupts" the norm, it will remain a great software maker but not a truly formidable consumer devices firm.
IBM's stock is down 12.5% so far this year. This is the only major tech stock that has slumped this year. The others have logged positive returns. By IBM's own admission, the necessary transformation at the company is a protracted process. "Big Blue" has yet to gather the speed required.
IBM has traditionally focused on licensing and maintenance, but it's now trying to migrate to a consumption or subscription-based model. Will the next year see a change of gears and a solid turbo-charge? Only time can tell.
Facebook has had its share of critics from when it went public in May 2012. The company likely will beat earnings forecasts for all of 2016. It's always relied heavily on ad revenues, but as we enter 2016, this could markedly change.
Emerging-market expansion and the Oculus Rift will be key developments to watch. Also, investors will be looking to see how Facebook's $19 billion acquisition of WhatsApp will pay off.
Great expectations and distinct potential - 2016 seems poised to be another year of interesting crests and troughs for the tech sector. And if you're looking for other tech stock opportunities beyond just the Big Boys, click here.
This article is commentary by an independent contributor. At the time of publication, the author held no positions in the stocks mentioned.









