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All Contents © 2018The Kiplinger Washington Editors
By Dan Burrows, Contributing Writer
| January 26, 2018
The best tech stocks today have been helping the market hit record highs seemingly every other day. That’s no secret. Less well-known is how technology has delivered such a disproportionate amount of the market’s lifetime wealth creation.
We know of tech’s outsize role because a finance professor made a startling discovery about the stock market: Over a 90-year span, 96% of all stocks collectively performed no better than risk-free one-month Treasury bills. After analyzing the lifetime returns of 25,967 common stocks, Hendrik Bessembinder determined that just 1,092 of those stocks – or about 4% of the total – generated all of the $34.8 trillion in wealth created for shareholders by the stock market between July 1926 and December 2016. Even more striking, a mere 50 stocks accounted for almost 40% of that amount.
You can see where this is heading. Of these elite 50 names, fully one in five is a tech stock. In other words, when it comes to lifetime wealth creation, the best tech stocks have punched well above their weight.
Before we get to our profiles of the 10 best-performing tech stocks of all time, a word of caution. Accurately identifying the precious few “home run” stocks amid the many thousands of underachieving names is extremely difficult. Your portfolio is more likely to suffer because you guessed wrong and failed to invest in the top long-term winners, says Bessembinder of Arizona State University’s W. P. Carey School of Business.
A better alternative to trying to find a needle in a haystack? To paraphrase Jack Bogle, the Vanguard founder and pioneer of index investing: Just buy the haystack. “The results reinforce the importance of diversification,” Bessembinder says, “and low-cost index funds are an excellent way to diversify broadly.”
Without further ado, here are the 10 best tech stocks of all time.
The 10 stocks are listed in reverse order of the dollar amount of lifetime wealth creation, which includes reinvested dividends. Current stock data as of Jan. 25, 2018. Analysts' ratings provided by Zacks. For more details on Bessembinder's study methodology and findings, download a copy of his paper, "Do Stocks Outperform Treasury Bills?"
Lifetime wealth creation: $129.3 billion
Annualized return (April 1961-December 2016): 9.9%
Current dividend yield: 2.4%
Current analyst ratings: 5 strong buy, 1 buy, 8 hold, 0 sell, 0 strong sell
The original Hewlett-Packard, started in 1939, was the first tech firm to be headquartered in what would later be known as Silicon Valley. The company’s fortunes really took off as home PCs and printers gained in popularity.
The beginning of the end for the original Hewlett-Packard started with the ill-fated 2001 acquisition of Compaq to form the world’s largest maker of PCs. Soon after, the PC market became saturated. Attempts to restart growth with smartphones and tablets were unsuccessful, losses mounted, and management was forced to lay off tens of thousands of employees. Hewlett-Packard split into two companies, HP Inc. (HPQ, $23.32) and Hewlett Packard Enterprise (HPE), in 2015.
HP Inc. carries on the legacy of the original stock, which was first listed on the New York Stock Exchange in 1961.
Lifetime wealth creation: $131.3 billion
Annualized return (March 1990-December 2016): 25.4%
Current dividend yield: 2.8%
Current analyst ratings: 10 strong buy, 3 buy, 4 hold, 0 sell, 0 strong sell
Cisco Systems (CSCO, $41.90), founded in 1984 and a publicly traded company since 1990, was one of the premier tech stocks of the dot-com boom. It suffered along with much of the technology sector when the bubble burst in 2000, but it was no Pets.com. Demand for the routers, switches and modems manufactured by Cisco that form the backbone of the Internet helped the company recover quickly.
That said, Cisco shares have been something of a disappointment since the current bull market began. True, shares in Cisco are up 277% since the market bottom of March 2009, including dividends, but the Nasdaq-100 index has gained 617% over the same span. Today, the company is reconfiguring itself to take advantage of the growth of cloud-based computing and the Internet of Things.
Lifetime wealth creation: $181.2 billion
Annualized return (June 2012-December 2016): 34.5%
Current dividend yield: N/A
Current analyst ratings: 21 strong buy, 4 buy, 1 hold, 0 sell, 0 strong sell
Facebook (FB, $187.48) got off to a rocky start when it went public in May 2012 at $38 a share. Technical glitches marred the initial public offering, and the stock traded below the IPO price for more than a year. Since then, however, it has been nothing but blue skies. Facebook’s share price has gained 390% in its five-plus years as a publicly traded company. The Standard & Poor’s 500-stock index is up 117% on a price basis over the same time frame.
The relentless growth of digital advertising bodes well for further gains. As the world’s most popular social media network, advertisers are happy to pay Facebook to reach all those eyeballs.
Lifetime wealth creation: $214.2 billion
Annualized return (April 1986-December 2016): 23.4%
Current dividend yield: 1.5%
Current analyst ratings: 18 strong buy, 1 buy, 8 hold, 0 sell, 0 strong sell
Founded in 1977 and publicly traded since 1986, Oracle (ORCL, $51.60) got its start as a provider of database management software. As much as any high-tech company of the era, it rode the late-1990s tech bubble to lofty heights – and then crashed. It has been a long, slow recovery ever since, driven by a wide portfolio of software aimed at corporate customers.
Where Oracle goes from here is less clear. Larry Ellison is still with the company after 40 years, though now in the role of chief technology officer. Management, led by co-CEOs Mark Hurd and Safra Catz, is in the midst of a major transformation, trying to reinvent the company and embrace the rush to cloud-based services.
Lifetime wealth creation: $259.3 billion
Annualized return (January 1973-December 2016): 17.7%
Current analyst ratings: 14 strong buy, 2 buy, 6 hold, 1 sell, 2 strong sell
Intel (INTC, $45.30), founded in 1968, is an old-timer among technology companies, and the semiconductor manufacturer’s longevity has paid off handsomely for shareholders. Its early start positioned the company to run away with the market for the chips that serve as a computer’s brain. Intel had close to 100% market share in central processing units for personal computers at one point. It still has 80% today. But PC sales are like a slowly melting iceberg.
Softening the blow, Intel remains the biggest player in making CPUs for back-end servers, which are very much in demand in order to power the rapid shift to cloud-based computing. What’s troubling is that Intel missed opportunities to make chips for mobile devices, which is where much of future growth lies.
Lifetime wealth creation: $335.1 billion
Annualized return (June 1997-December 2016): 37.4%
Current analyst ratings: 28 strong buy, 5 buy, 2 hold, 0 sell, 1 strong sell
Amazon.com (AMZN, $1,377.95), which began life as a modest website for book buyers, recently celebrated its 20th anniversary as a publicly traded company. It’s been a heck of a ride for shareholders since the 1997 market debut. The stock’s 37.4% annualized return is by far the highest on this list. The current bull market has been especially kind to Amazon investors, with the share price experiencing a 22-fold increase since March 2009.
Amazingly, Amazon’s best days may still lie ahead. In additional to evolving into the nation’s largest e-commerce company, Amazon is also a leader in cloud computing. Its recent acquisition of Whole Foods is threatening to disrupt the grocery business, and package delivery by drones could become reality in the not-too-distant future.
Lifetime wealth creation: $365.3 billion
Annualized return (September 2004-December 2016): 24.9%
Current analyst ratings: 21 strong buy, 4 buy, 4 hold, 0 sell, 0 strong sell
Alphabet (GOOGL, $1,182.14) has certainly made the most of its relatively short time as a publicly traded company. Shares of what was then known as Google – the corporate name was changed to Alphabet in 2015 – were initially offered to the public just over 13 years ago, and by the end of the first trading day in 2004 the company was worth $27 billion. Today, Alphabet has a market value of more than $800 billion.
The Google search engine is Alphabet’s most important business, but not its only one, thus the corporate name change. Alphabet is also home to self-driving car startup Waymo; Nest Labs, a developer of gadgets for the Internet of Things; and X, which describes itself as a “moonshot factory” trying to invent technologies that will make the world a radically better place.
Lifetime wealth creation: $520.2 billion
Annualized return (July 1926-December 2016): 13.8%
Current dividend yield: 3.6%
Current analyst ratings: 4 strong buy, 2 buy, 11 hold, 0 sell, 2 strong sell
Think of International Business Machines (IBM, $165.47), which began operating under its current moniker in 1924, as the granddaddy of tech stocks. In many way’s, the company’s history is a history of 20th century technological progress. As for the current century, it’s a tougher call. IBM produces computer hardware and software for businesses. Consulting is another important area of operation. However, cloud-based services appear to be the future, and IBM has no shortage of competition. Amazon, Microsoft, Alphabet, Oracle and Cisco Systems are some of the well-known tech companies jostling for space.
Warren Buffett read IBM’s annual reports for decades before finally taking a stake in 2011. It’s looking more and more like he made a rare bad call. Buffett dumped more than half his stake in 2017, still leaving Berkshire with some 37 million shares of IBM.
Lifetime wealth creation: $629.8 billion
Annualized return (April 1986-December 2016): 25.0%
Current dividend yield: 1.8%
Current analyst ratings: 20 strong buy, 1 buy, 4 hold, 1 sell, 1 strong sell
In 1975, Bill Gates dropped out of Harvard to start a computer company with childhood friend Paul Allen. In 1985, the first Windows operating system went on sale. A year later, Microsoft (MSFT, $92.33) went public at $21 a share (or the equivalent of 6 cents a share once the price is adjusted for stock splits and dividends). The company quickly revolutionized personal computing and created a generation of so-called Microsoft Millionaires.
Not long ago, Microsoft’s glory days looked to be behind it as sales of desktop PCs slipped into a seemingly irreversible decline. However, the company is experiencing a renaissance thanks to the move away from licensed software to cloud-based subscription software. Today, Microsoft is a top player in cloud computing and its stock reflects this success. Shares have outperformed the S&P 500 by 20 percentage points over the past 52 weeks.
Lifetime wealth creation: $745.7 billion
Annualized return (January 1981-December 2016): 16.3%
Current analyst ratings: 16 strong buy, 3 buy, 8 hold, 0 sell, 2 strong sell
What’s left to say about Apple (AAPL, $171.11)? Only Exxon Mobil (XOM) has created more wealth for shareholders over the course of its life. Its co-founder, Steve Jobs, is legendary, its gadgets are ubiquitous, and with a current market capitalization of $880 billion, it’s on course to become the first $1 trillion company in market history.
Investors can thank the iPhone for the eye-popping run-up in the value of the stock. Before Jobs debuted the revolutionary smartphone in 2007, Apple was a well-regarded maker of pricey personal computers that catered to niche markets. In the 10 years since, more than a billion iPhones have been sold. Shares of Apple have gained a whopping 900% since the gadget’s initial release. Adding to Apple’s many accolades was its inclusion in the Dow in 2015, replacing AT&T (T).
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