Tech stocks have a tendency to go up and down, but that doesn’t mean they’re all the same.
A new study by The Motley Fool and Zacks Investment Research finds that some companies have different strategies that can make them better bets.
The study, titled “A new era in technology stocks,” analyzes stock returns for companies in sectors ranging from consumer electronics to biotech.
The firms are divided into five buckets based on the performance of their underlying companies.
The top five stocks are based on “investment grade” and have a ratio of 5:1.
The bottom five stocks fall in the middle of the pack and have an average ratio of 2:1, which means their returns are below average.
The median stocks in the top five buckets return 7.5% and 7.2% a year, respectively.
In the bottom five buckets, the median stocks are expected to return 0.4% and 3.3%, respectively.
“It’s an opportunity for the average investor to look for a diversified portfolio that offers the best return,” said Tim McLean, chief investment officer at Zacks.
“Investors should be prepared to pay more for the riskier stocks, which may be good for them, as well as the companies that have the most upside.”
The research also found that the average return for the five top companies is a 12.9% increase.
The typical yield on an index fund is around 4%, so the average investment return for a $100,000 portfolio is a 10.6% gain.
The bottom five portfolios in the study average a 4.4%.
“If you’re looking for an investment that will return the same or better than your average return, the top picks might be a better option,” McLean said.
“But if you’re an investor looking for a safe, diversified option, the bottom buckets may be a little more bearish.
For instance, some high-quality stocks might outperform the average portfolio.
The study found that there are some companies in each of the five buckets that have outperformed their average portfolio, but the difference is so small that you would not expect to notice it.”
The top five companies in the fund with the best returns are:Amazon.com, +0.27%Apple, +2.18%Microsoft, +3.16%Google, +1.87%Facebook, +8.38%NASDAQ: FB, +4.08%Intel, +5.39%Tesla, +12.11%Google+ and Twitter.
Source: The Motleys Fool