Tech stocks have been in absolute decline for the past 25 years, outperforming all other sectors by a wide margin. And with artificial intelligence now significantly enhancing these companies, I believe the technology sector is poised to continue experiencing similarly accelerated growth over the next 20 years. Therefore, it’s important to have meaningful exposure to top tech stocks in your portfolio if you want to maximize your returns.
However, that’s only part of the equation. While tech giants can deliver market-beating returns and steady growth, small-cap, up-and-coming tech stocks (and depressed former high-flyers on the verge of a comeback) can significantly boost portfolio returns. Hitting a home run with just a few of these high-risk, high-reward stocks can significantly increase your overall returns over the long term. Here are three tech stocks that are well-positioned to do just that.
Cerence (CRNC)
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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 that enable automakers to embed conversational voice interfaces into connected cars and create customizable in-car experiences. Although the stock has been underperforming recently due to the broader slowdown in the EV sector, I believe Cerence has significant long-term growth potential.
Concerns over slowing EV sales have overshadowed even auto stocks that aren’t directly involved in manufacturing, like Cerence. But I think this is a temporary headwind. Demand for EVs is likely to recover as interest rates fall and consumers feel confident about making large purchases again. Cerence’s virtual assistant technology is being incorporated into more and more models, leading to a surge in demand for its products. Indeed, this is a technology company with a long path to growth.
The company’s stock price chart isn’t looking good right now (it’s been flat for a while). However, I think buying CRNC stock at current levels has the potential for significant gains over the next few years. Cerence still trades at a reasonable valuation of just 10 times expected earnings. Sales are expected to increase by 23% this year as well. At about $13 a share, Cerence seems like a bargain, considering the huge upside potential for the automotive technology giant’s software company.
PayPal (PYPL)
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PayPal (NASDAQ:PYPL) is another unpopular tech stock that I’ve been bullish on for a while. Although the recent decline has seen PYPL stock trade 47% below its pre-pandemic highs, PayPal believes it will recover strongly in the coming years.
It is the world’s leading digital wallet and online payment processor. visa (New York Stock Exchange:V) and master Card (New York Stock Exchange:Ma). PayPal is available almost everywhere online. With such a strong brand and reach, it’s hard to imagine that this company won’t bounce back in a big way. The company’s core business continues to perform well, and earnings are expected to grow in the low single digits going forward.
Much of the negativity surrounding the stock stems from a slowdown in PayPal’s user numbers, which has even turned negative. However, for a mature platform like PayPal, user growth is more important than transaction volume or revenue from existing users. This remains a cash cow business. PayPal’s management is also actively buying back billions of shares.
Looking at the current situation of PayPal, I was reminded of the following: meta (NASDAQ:meta) Stock prices slump due to concerns about user growth. If the economy improves and PayPal pays a dividend, the stock could rise significantly, making it a multibagger stock again.
Transact Technologies (TACT)
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transact technologies (NASDAQ:tact) is a little-known tech stock with diversified revenue streams that is nearing an inflection point in growth. This innovative company designs, develops, and markets specialty printers, terminals, and solutions for key growth industries such as food service, casino and gaming, point-of-sale automation, and oil and gas.
After a difficult few years during the pandemic, TransAct appears poised for a comeback. Analysts expect revenue and profitability to rebound this year. Growth should accelerate in the future. The company leverages strong cash flow from its successful casino printer business to fund a high-margin recurring revenue base. Health Approved (BOHA) Restaurant Technical Services.
By targeting large restaurant chains and retail stores with this innovative IoT platform, TransAct has significant room for growth in the future. With exposure across so many industries and early signs of an upturn, now seems like a great time to buy his TACT stock. If the company can pull off some big BOHA deals soon, the stock could easily return several times over over the long term.
On the date of publication, Omor Ibne Ehsan did not have (directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the author and are subject to InvestorPlace.com Publishing Guidelines.
