Tech stocks have been on an absolute tear over the past two and a half decades, handily outperforming all other sectors. And with artificial intelligence now supercharging these companies, I believe the tech sector is poised to continue seeing accelerating growth over the next 20 years as well. That’s why it’s critical to have meaningful exposure to top tech stocks in your portfolio, if you want to maximize returns.
However, that’s only part of the equation. While tech giants can provide market-beating returns and steady growth, smaller up-and-coming tech stocks (and depressed former high-flyers poised for a comeback) can really juice your portfolio’s return. Hitting a home run on just a couple of these high-risk, high-reward stocks could significantly boost your overall returns over the long-run. Here are three tech stocks that are well-positioned to do just that.
Cerence (CRNC)
Cerence (NASDAQ:CRNC) is a global leader in AI-powered virtual assistants for the automotive sector. This innovative company develops core technologies, cloud services, and solutions to enable automakers to incorporate conversational voice interfaces into connected vehicles, creating customizable in-car experiences. While the stock has languished recently amid a broader slowdown in the EV sector, I believe Cerence has tremendous long-term growth potential.
Worries about slowing EV sales have cast a pall over automotive stocks, even those not directly involved in manufacturing like Cerence. But I think this is a temporary headwind. Once interest rates decline and consumers feel more confident about making large purchases again, demand for EVs is likely to rebound. Cerence’s virtual assistant technology will be embedded in more and more models, leading to rocketing demand for its offerings. Indeed, this is a tech company with a long runway for growth.
The company’s stock chart looks ugly right now (it’s been trading sideways for some time). However, I think buying CRNC stock at current levels could generate substantial returns in the coming years. Cerence is still trading at a reasonable valuation of just 10-times forward earnings. Revenue is expected to climb 23% this year as well. Considering the massive upside potential for a leading software player in the auto tech space, Cerence seems like a bargain buy around $13 per share.
PayPal (PYPL)
PayPal (NASDAQ:PYPL) is another out-of-favor tech stock I’ve been bullish on for a while. Despite a recent slide that has PYPL stock trading 47% below its pre-pandemic peak, I believe PayPal will recover strongly within the next few years.
It’s the leading digital wallet and online payment processor globally after Visa (NYSE:V) and Mastercard (NYSE:MA). PayPal is accepted virtually everywhere online. With that kind of brand power and reach, I find it hard to imagine this company won’t rebound in a big way. The company’s core business remains solid too, with high single-digit revenue growth ahead.
Much of the negativity around this stock stems from PayPal’s decelerating user growth, which has even turned negative. But for a mature platform like PayPal, user growth matters less than transaction volume and revenue from existing users. This remains a cash cow operation. PayPal’s management team is aggressively buying back billions in stock as well.
PayPal’s current situation reminds me of Meta’s (NASDAQ:META) stock price languishing due to user growth concerns. Once the economy improves and PayPal potentially pays a dividend, this could be a multi-bagger stock again as it surges much higher.
TransAct Technologies (TACT)
TransAct Technologies (NASDAQ:TACT) is an under-the-radar tech stock with diversified revenue streams that is approaching a growth inflection point. This innovative company designs, develops, and markets specialty printers, terminals, and solutions for major growth industries including food service, casino and gaming, POS automation, and oil and gas.
After a few challenging pandemic years, TransAct looks poised for a comeback. Analysts are forecasting a return to profitability this year alongside recovering revenue. Growth should accelerate going forward. The company is leveraging strong cash flow from its successful casino printer business to fund its high-margin, recurring revenue board of. health approval (BOHA) restaurant tech offering.
By targeting large restaurant chains and retailers with this innovative IoT platform, TransAct has massive room for growth ahead. With exposure across so many industries and early signs of a turnaround emerging, this looks like an opportune time to buy TACT stock. If the company can land some big BOHA deals soon, the stock could easily deliver multi-bagger returns over the long haul.
On the date of publication, Omor Ibne Ehsan did not hold (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.
