Let’s say you have $50,000 to invest. How should you do it? Here at The Motley Fool, we recommend spreading your risk by investing in at least 25 stocks across various sectors.
But what if you could only pick three? And what if they all had to be in the tech sector?
Advanced Micro Devices
The first stock I’d target with $50,000 would be AMD. In brief, AMD is simply one of the world’s most indispensable companies. Why? It all comes down to semiconductors — and their importance to everyday life.
Cloud computing, artificial intelligence, and the metaverse are cutting-edge technologies of the following decades. And each of them requires enormous computing power driven by microprocessors and graphic semiconductors like the kinds AMD designs and sells.
Incidentally, while AMD has enormous secular tailwinds at its back, it’s also gaining market share from its chief rival, Intel. The company remains mired in long-term problems that seem to be worsening, opening more opportunities for AMD.
Of course, AMD isn’t without its own challenges. The weak personal computer market will likely hold AMD back in 2023, but analysts see brighter prospects in 2024 and beyond.
At any rate, I wouldn’t hesitate to add AMD to my hypothetical $50,000 portfolio. The company is well-run and well-positioned to capitalize on long-term trends. That’s exactly the sort of stock I want to own.
The Trade Desk
The second tech stock I’m adding to my hypothetical portfolio is The Trade Desk. The company runs an online platform that allows customers to generate, manage, and fine-tune advertising content. This business is increasingly important for ad agencies, as overseeing ad campaigns has grown progressively more difficult in recent years.
Imagine trying to coordinate — let alone measure — the effectiveness of a campaign running across multiple platforms. The Trade Desk’s software helps ad agencies by automating campaigns and placing ads on the best platform for the best price.
The company’s stock tumbled in 2022 as advertisers pulled back on spending. Nevertheless, The Trade Desk is growing revenue at a rate of 31% year over year. Meantime, as more platforms like Netflix, Disney+, and HBO Max expand to include ad tiers — or explore the possibility — The Trade Desk stands to benefit.
My final pick for my hypothetical $50,000 portfolio is Airbnb. One of my favorite investment heroes, Peter Lynch, famously said, “buy what you know.”
Well, I know Airbnb. I use it, I love its model, and it’s clear to me: Airbnb is a great company.
As a disruptor within the travel industry, Airbnb has a leg up on its legacy competitors. Consider this: The company lacks much of the costly overhead and expenses that eat away at the profits of resorts and hotels. Airbnb doesn’t employ front-desk, maintenance, or managerial staff. Moreover, it doesn’t own its vacation properties — or their corresponding debt.
Airbnb’s asset-light model enables it to run a cash-flow-rich business — and it’s doing just that. In 2022, the company generated $3.2 billion in free cash flow — a record high. What’s more, Airbnb is able to achieve this cash flow while maintaining a nearly pristine balance sheet. The company has over $7.5 billion in cash on hand and no debt.
With those solid fundamentals behind it, I would be happy to include Airbnb in my hypothetical $50,000 portfolio.
Jake Lerch has positions in Airbnb, Intel, and Walt Disney and has the following options: long September 2023 $60 calls on Advanced Micro Devices, short March 2023 $27.50 calls on Intel, and short September 2023 $100 puts on Advanced Micro Devices. The Motley Fool has positions in and recommends Advanced Micro Devices, Airbnb, Intel, Netflix, Trade Desk, and Walt Disney. The Motley Fool recommends the following options: long January 2023 $57.50 calls on Intel, long January 2024 $145 calls on Walt Disney, long January 2025 $45 calls on Intel, short January 2024 $155 calls on Walt Disney, and short January 2025 $45 puts on Intel. The Motley Fool has a disclosure policy.