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Stock Watch

FTSE 100 tech stocks to watch in 2020

The FTSE 100 might be in “panic mode” due to concerns over the coronavirus, but over the long-term stock traders have plenty of reasons to be optimistic. Brexit uncertainty has eased and macroeconomic conditions look brighter. According to Russ Mould, investment director at AJ Bell “the FTSE 100 may have a better chance of making it to 8,000 by the end of 2020 than many suspect.”

One sector analysts are talking up is FTSE 100 tech stocks. In 2019, the UK tech sector was worth £10.1 billion, up £3.1 billion from 2018, according to Tech Nation. Strong investment means that only the Chinese and US tech stock sectors are worth more.

Trading on these stocks typically prioritises share price growth over value. Backing high-quality tech stocks saw UK fund manager Fundsmith return 25% last year. 

“The FTSE 100 may have a better chance of making it to 8,000 by the end of 2020 than many suspect” - AJ Bell investment director Russ Mould

 

But which ones should stock traders watch out for? We look at the prospects for three FTSE 100 tech stocks and ask where will their share prices end up in 2020?

 

Just Eat share price

Just Eat's [JE] share price has shot up 19.5% over the past 12 months. On 21 October, the stock lept 24.95% after Just Eat rejected a hostile takeover from Prosus. This triggered a bidding war with Takeaway.com's offer eventually accepted.

However, The Competition and Markets Authority confirmed last week that it had launched a probe into Takeaway.com's £6 billion takeover.

The UK regulator’s concern is that the acquisition would see “a substantial lessening of competition” in the market. While 90% of Just Eat shareholders had accepted the deal, the probe will delay the merger by a week.

 

 

 

On Yahoo Finance, Just Eat has an average 868.56p share price target. Hitting this would see a slight 1.5% upside on the current share price. Out of the 17 analysts tracking the stock, 15 rate it either a Strong Buy or a Buy, while one analyst rates it a Hold and another an Underperform.

Just Eat's share price carries a hefty 149.24x price to earnings multiple. The big question is whether analysts have correctly priced in the takeover deal and whether it will prove a catalyst for major growth in the firm.

 

Ocado share price

Ocado's [OCDO] share price is up 34.5% over the past 12 months. Powering this growth has been the online grocer's diversification into high-tech warehouses that it builds for international clients. This has seen it make the jump to ‘tech stock’, with an appropriately high valuation.

But 2019 wasn't all good news for Ocado. A fire at its Andover facility hurt the share price and, after last year's gains, there is a possibility that investors are overvaluing the stock. Then there's the fact that Ocado is loss-making and pays no dividends to shareholders.

 

 

 

 

Will Ocado deliver for investors in 2020? In the UK, a deal with M&S to fulfil its online deliveries could boost the stock later this year. Internationally, Ocado has partnered with Kroger in the US to build six high-tech fulfilment centres. If these initiatives take off and start adding to the bottom line, then Ocado's lofty valuation might start to make sense.

But analysts seem unsure. On the Financial Times, Ocado's share price has an average price target of 1,210p. Hitting this would see an 8.2% drop on the current share price.

 

Sage share price

Sage's [SGE.L] share price is up over 19.4% in the past 12 months, although 2019 was decidedly rocky. On 24 July, Sage's share price tanked 12% in a single day as it revealed a slump in software sales. This caused the company to state that it expected profits to fall within the lower-end of guidance.

Since that low point, Sage's share price has clawed back some of those losses. But is a run on last July's high on the cards? In recent Q1 results, chief financial officer Jonathan Howell said the company is now focused on moving more clients onto its cloud-based subscriptions “in line with our vision to become a great SaaS company.”

 

 

 

 

Among the analysts, Sage carries a 695p average price target - a 9.3% downside on the current share price. Of the 20 offering ratings on the Financial Times, three rate Sage a Buy or Outperform. While seventeen analysts rate it a Hold or Underperform.

Despite last year's setback, Sage has consistently delivered for income-seeking investors. A 2.24% forward yield is among the best for any tech stock out there.

And while 2019's earnings missed expectations, investors could see Sage as a long-term investment with its forward-thinking aim of becoming a leading SaaS company.

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