Forbes: Five major trends including mobile APP will drive technology stocks to continue to rise next year

Forbes magazine recently published an article on the outlook for technology stocks in 2016. Forbes believes that there will be five major trends that will drive technology stocks up next year. Technology stocks performed better than the entire market in 2015, and some "huge" trends will continue next year. According to FactSet's forecast, the technology industry's profits will grow by 8% in 2016, which is comparable to the S&P 500 index, and technology sales are expected to grow by 4.7%, which is slightly better than the 4.3% of the S&P 500 index.

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1. Smartphones take over the world

In 2015, 42% of smartphones used worldwide were connected to the Internet. Credit Suisse estimates that this proportion will grow to 53% by 2017, with North America increasing to 71%. Currently, 4G mobile phone packages only account for 12% of global mobile packages, and there will be a lot of room for growth in the future.

Generally speaking, smartphone users will upgrade to a new phone every one or two years. Smartphone manufacturers are desperately innovating to please consumers and attract them to buy the latest and best products. Ron Weiner, president and CEO of RDM Financial Group, believes that "normal growth brought about by new technologies replacing old technologies, the expansion of the middle class, and the globalization of business will all drive up stock prices. Companies must continue to innovate to reduce costs and remain competitive."

2. The demand for apps is endless

The more smartphones there are in the market, the more smartphone apps and other apps people will need. Facebook is developing artificial intelligence and virtual reality apps.

"In the long run, Facebook is willing to adopt new technologies rather than force itself to fit a preconceived strategy, so it can remain flexible," said Steve Andriole, a professor of business, accounting and information systems at Villanova University.

We can see that Facebook has released a new product or service every other week this year: Facebook Lite, 360 video, instant articles, new search features, independent group apps. It has also started to make money from Instagram, which had 300 million monthly active users in December last year and 400 million in September this year. Considering everything Facebook has done this year, its stock price should not have a problem rising, and Facebook is guaranteed to make money in the future.

3. The Internet growth potential in emerging markets is amazing

If Internet penetration in emerging markets reaches 80%, close to the levels in the United States and Europe, the number of global Internet users will increase by 1.75 billion, reaching a total of 3.15 billion.

Amazon and other online retailers have taken over the world thanks to the rapid growth of online shopping. Online spending accounts for only 7% of retail spending in the United States and 13% in the United Kingdom, which has the most developed online market in the world. In some emerging markets, online shopping has not yet become a reality.

Credit Suisse said in the report: "We would not be surprised if 20% of retail sales came from the Internet. Amazon's product coverage is three times larger than Walmart. In one area, Amazon provides one-hour delivery and recently established an independent delivery system."

Jose Morales, chief investment officer of Mirae Asset Global Investments, which manages $75 billion in assets, recently said that Tencent should be invested in to seize growth opportunities in emerging markets. He believes that "Tencent is an industry leader, and China's middle class is growing rapidly. Tencent can generate revenue from the consumption of this group." Ernst & Young estimates that by 2030, China will have 1 billion people in the middle class, accounting for 70% of the total population; India will have 475 million, compared with only 50 million in 2010.

4. Big data will get bigger in the cloud

In the past 10 years, the compound annual growth rates of software sales and online software services have reached 11.5% and 21% respectively, while other markets have only grown at 5.8%.

The Credit Suisse report believes: "Software growth will continue to be faster than average due to the arrival of large and fast data and the growth of connected devices. Earnings of global software stocks will continue to grow, better than the overall market. The only problem is that the stock price is too high."

In the report, Credit Suisse is optimistic about companies such as Microsoft, Oracle, and SAP, which are transforming to cloud services and growing rapidly. IBM will also benefit from the development of cloud computing.

5. The war against hackers never ends

JPMorgan Chase, Sony, and Ashley Madison have all suffered cyber attacks. Banks are more afraid of hackers than economic or government regulatory issues.

“Enterprises are concerned about targeted attacks from cyber criminals, they’re concerned about nation-state-sponsored attacks, they’re concerned about malware on employees and contractors,” said Steve Schick, senior director of enterprise communications at LightCyber, a Los Altos, Calif.-based security company that detects cyberattacks by analyzing behavioral patterns. “A recent report from Kaspersky Lab showed that 73% of enterprises have experienced a cyberthreat.”

Schick believes that by 2020, 60% of corporate information security budgets will be used to quickly detect and repair network security vulnerabilities, compared to only 10% in 2014. RDM Financial Group also believes that network security will remain one of the key themes of technology.

Summary: Investment Risks

Some trend-aligned stocks are too expensive and may face corrections. Facebook's price-to-earnings ratio is 39 times, its price-to-sales ratio is 18 times, and its stock price is nearly 7 times its book value. In comparison, the S&P 500 technology stocks have a price-to-earnings ratio of 19 times, a price-to-sales ratio of 3 times, and a stock price of nearly 4 times its book value.

Holmes Osborne, founder of Osborne Global Investments, said: "Facebook has a market value of $301 billion and sales of $15.8 billion for the past 12 months. It will have to increase sales many times to deserve such a market value. There are other companies like this. When the bubble appears, it will affect all technology stocks."

Amazon's valuation is even more outrageous, with a price-to-earnings ratio of 974 times, a price-to-sales ratio of 3 times, and a stock price of 25 times the book value of the stock. Amazon's average price-to-earnings ratio over the past five years has been 457 times.

"As a value manager, I generally stay away from stocks that trade at 100 times earnings," said Kim Forrest, an analyst and vice president at Fort Pitt Capital. "You can't buy and forget about any stock, especially when it comes to tech stocks. Technology is evolving, and it can turn a good stock today into a garbage stock tomorrow."