While innovation typically coincides exclusively with a growth-centric business model, that’s not always the case as these tech stocks to buy for growth and passive income demonstrates. With this category, investors can have their cake and eat it too.
Primarily, the advantage that tech stocks for passive income offers is relevance. Sure, you can always elect to acquire shares of defensive consumer enterprises – there’s absolutely nothing wrong with this approach. However, a drawback may be that such companies are too predictable, leading to limited rewards. With technology players, you can enjoy a more heightened risk-reward profile.
Secondly, achievements in the innovation ecosystem – such as artificial intelligence and machine learning – can help lift all boats. For example, people love talking about the stratospheric rise of Nvidia (NASDAQ:NVDA). But because NVDA trades at wildly high multiples, astute investors are also looking for alternative tech stocks for growth.
Finally, it’s always encouraging to have some exposure to companies that offer dividends, especially under ambiguous market conditions. On that note, below are tech stocks to buy for growth and passive income.
Gen Digital (GEN)
A multinational software firm, Gen Digital (NASDAQ:GEN) provides cybersecurity software and services. Fundamentally, the underlying specialty should resonate with investors over the long run. For example, I covered the implosion of Clorox (NYSE:CLX) shares, a volatile event stemming partly from a cyberattack. With such data breaches representing more than just a mere nuisance, demand for digital protection should rise.
To be sure, the year-to-date performance hasn’t exactly been encouraging, with GEN down more than 1%. Nevertheless, in the trailing one-month period, it shot up 28%. According to Investopedia, Gen Digital’s second quarter of fiscal year 2024 saw revenue jump 27% year-over-year to $948 million. This tally also beat estimates, leading to significant market interest.
On the financials, GEN benefits from an attractive valuation. Currently, shares trade at only 10.94x forward earnings. In contrast, the underlying sector median stands at 21.63x. Further, investment data aggregator Gurufocus points out that Gen Digital carries a forward dividend yield of 2.33%.
Combined with a strong buy consensus view, GEN makes a great case for tech stocks to buy for growth and passive income.
Open Text (OTEX)
Based in Waterloo, Ontario, Canada, Open Text (NASDAQ:OTEX) develops and sells enterprise information management software. According to MarketsandMarkets, the global enterprise data management sector reached a valuation of $77.9 billion in 2020. By 2025, experts project that this space could see a value of $122.9 billion, representing a compound annual growth rate (CAGR) of 9.5%.
Therefore, OTEX is well worth keeping tabs on as one of the tech stocks to buy for growth and passive income. Indeed, shares gained over 34% YTD, with much of the performance stemming from a recent bounce back. Prior to the company’s fiscal first quarter, OTEX incurred significant volatility. However, investors appreciated that Open Text posted earnings per share of $1.01, beating the 91-cent consensus view.
In terms of passive income, the company offers a forward yield of 2.45%. It’s also worth pointing out that the enterprise enjoys solid margins, leading to consistent annual net income. As a bonus, analysts peg OTEX as a strong buy with a $46.60 average price target. Thus, it’s also one of the tech stocks for growth.
Skyworks Solutions (SWKS)
A semiconductor company, Skyworks Solutions (NASDAQ:SWKS) specializes in chips for use in mobile communication systems and radio frequency (RF). While the focus may be narrower than other tech stocks to buy for growth and passive income, the RF sector commands exceptional relevance. According to Grand View Research, the global RF components market size reached a value of $30.68 billion last year.
Even better, experts project that by 2030, this segment will hit a valuation of $88.12 billion. That comes out to a CAGR of 14.2% from 2023. It’s also wroth mentioning that at time of writing, Skyworks features a market capitalization of $15.2 billion. Therefore, the company enjoys a large total addressable market. And we haven’t even talked about the mobile communications sector.
Per Gurufocus, Skyworks offers a forward yield of 2.86%. Also, the current dividend payout ratio comes in at 41%, which is quite reasonable. So, just on the dividends alone, Skyworks makes a case for tech stocks for passive income. Also, analysts rate SWKS a moderate buy with a $102.77 price target.
Silicon Motion (SIMO)
An American-Taiwanese enterprise, Silicon Motion (NASDAQ:SIMO) focuses on developing NAND flash controller integrated circuits (ICs) for solid-state storage devices. According to Mordor Intelligence, the solid-state drive (SSD) industry will reach a value of $55.69 billion this year. Moreover, experts project that by 2028, the sector could reach a valuation of just over $125 billion. That comes out to a CAGR of 17.56%.
However, Wall Street doesn’t quite see the potential of SIMO (at least not yet). Since the beginning of the year, SIMO slipped almost 8%. Nevertheless, I think a case can be made that it’s one of the tech stocks to buy for growth and passive income. First, the company commands a three-year revenue growth rate of 29.8% so that handles that aspect.
Second, the enterprise is also consistently profitable thanks to its relevant business. And it’s in the business of rewarding shareholders with a forward yield of 3.42%. Analysts peg SIMO a moderate buy with a $70.17 target, implying almost 19% upside. Again, it’s a balanced example of tech stocks for passive income and growth.
Information Services (III)
Headquartered in Stamford, Connecticut, Information Services (NASDAQ:III) bills itself as a leading global technology research and advisory firm. Per its website, the company partners with its clients to develop a strategy, foster rapid change and help realize the value of their digital investments at scale. It also recently acquired Ventana Research, which specializes in the coverage of the multi-billion-dollar software industry.
Overall, the buyout should further cement Information Services’ dominance in its field. Now, for full disclosure, the Street doesn’t quite see the benefit of betting on III stock. Since the January opener, it dipped more than 7%. Nevertheless, it could make a case for tech stocks to buy for growth and passive income.
While the company doesn’t post impressive long-term sales stats, its acquisitive nature should boost its industry presence. It’s also consistently profitable (for the most part) and features a lowly forward earnings multiple of 8.62x. Regarding passive income, III offers a forward dividend yield of 4.18%.
Analysts since July have rated shares a unanimous buy. Thus, it’s one of the tech stocks for growth.
IBM (IBM)
When it comes to tech stocks for passive income, it’s difficult to ignore IBM (NYSE:IBM). Let’s be brutally honest. For the longest time, Big Blue was largely only known for its robust dividend yield relative to other tech enterprises. Otherwise, investors didn’t have much reason to bet on IBM stock for its capital gains potential. Looking back in the past five years, shares have only gained a bit over 31%.
Now, compare that to the tech-centric Nasdaq Composite index, which moved up almost 95% during the same period. Stated differently, you could have passively bought a basket of the Nasdaq and done much better than IBM. However, this narrative of the hapless legacy tech giant could be shifting. In the trailing six months, IBM stock gained over 20% of equity value.
With that, it makes a case for tech stocks to buy for growth and passive income. After all, we’re already accustomed to the dividend. Per Gurufocus, the company carries a forward yield of 4.26%. Lastly, analysts peg IBM a moderate buy, with the high-side target landing at $179.
United Microelectronics (UMC)
Another Taiwanese company based in Hsinchu, United Microelectronics (NYSE:UMC) represents its nation’s first semiconductor company. Per its public profile, United Microelectronics spun off of the government-sponsored Industrial Technology Research Institute in 1980. Since then, it has gone onto play a significant role in the global semiconductor supply chain network. Sure enough, the market appreciates it, sending UMC up over 18% YTD.
To be sure, the ride in the chip industry has not been a smooth one this year. Further, concerns about a possible global slowdown or even recession cast a dark cloud over United and its peers. Still, if you’re willing to take a risk, UMC may represent one of the tech stocks to buy for growth and passive income. If anything, investors should consider the forward multiple of 12.92x.
That’s significantly lower than the sector median value of 22.42x. As for the dividend, UMC carries a massive forward yield of 7.52%. Finally, Goldman Sachs’ Bruce Lu rates shares as a buy with a $10.20 price target. That implies upside of over 30%.
On the date of publication, Josh Enomoto did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
