Consider Microsoft, PayPal, Okta stocks

As a new investor, it is important to consider your tolerance for risk. Some people may be more comfortable with exchange traded funds (ETFs), while others prefer to choose stocks. If you choose the latter option, keep in mind that you will need to do your homework. It is important to understand a business before buying a stock.

Personally, I own over 30 stocks, but I think 15 is a good initial goal. Don’t panic – you don’t have to buy them all at once. Work towards this goal at your own pace. And as a starting point, consider investing in Microsoft (NASDAQ: MSFT), Pay Pal (NASDAQ: PYPL)and Okta (NASDAQ: OKTA). Here’s why.

Microsoft

Microsoft is the world’s largest software-as-a-service company and the second-largest public cloud service provider. The Microsoft 365 suite includes standard office applications like Word and PowerPoint, collaboration tools like Teams, cybersecurity solutions like Microsoft Defender, and other business offerings.

In cloud computing, Microsoft Azure has gained significant market share in recent years, growing from 14% in Q4 2017 to 20% in Q4 2020. This growth has been driven by investments in geographic expansion, as well as efforts to Microsoft to improve key services like data analytics and artificial intelligence.

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Microsoft’s investment thesis is simple: Office software is an essential resource for most businesses, and Microsoft 365 is clearly the market leader. In fact, it is the most popular business software of all categories.

Likewise, cloud computing is increasingly popular as it provides a more convenient and cost effective option for customers. Additionally, Microsoft recently launched Azure Percept for Edge AI and updated Azure Arc for Hybrid Clouds, both of which are at the heart of its growth strategy. These products are aimed at rapidly growing industries, which should help Azure continue to gain market share.

Compared to PayPal and Okta, Microsoft trades at relatively cheap multiples: 11 times sales and 33 times profits. Microsoft is also much bigger, with a market cap of $ 1.8 trillion. Generally speaking, this indicates less upside in the long run. However, the titanic size of the company is also an incredible advantage, allowing it to spend more and operate more profitably than many competitors. This is why Microsoft looks like a good long term investment.

Pay Pal

PayPal offers a variety of payment products, from processing services for merchants to mobile consumer apps like Venmo.

The company has grown to significant scale, reaching 392 million active accounts in the last quarter. PayPal has also demonstrated its ability to create value for merchants. For example, according to a study by Nielsen, when businesses accept PayPal, they see 17% more repeat buyers and enjoy 34% more total payments.

Since the start of the pandemic, PayPal has launched several new services designed to increase user engagement, including the ability to buy, sell, and make payments with cryptocurrencies like bitcoin. These initiatives are bearing fruit. Growth in total payment volume (POS), the value of all payments facilitated by PayPal, increased by 50% in the first quarter of 2021. This is a strong acceleration from the 18% growth of the POS in the first quarter. 2020.

Over a longer period of time, PayPal has achieved impressive financial performance.

Metric

2017

Q1 2021 (TTM)

TCCA

Returned

$ 13.1 billion

$ 22.9 billion

19%

Free movement of capital

$ 1.86 billion

$ 5.3 billion

38%

Data source: PayPal deposits with the SEC. TTM = last 12 months. CAGR = compound annual growth rate.

Going forward, PayPal’s business case focuses on digital payments and e-commerce. Cash lacks the convenience and security offered by digital wallets and payment cards, and online shopping is gaining popularity around the world. These two forces are expected to continue to drive adoption of the PayPal platform in the years to come.

Okta

Okta provides Identity and Access Management (IAM) solutions that address both workforce and consumer use cases.

For example, employees use Okta to securely access critical applications and services, whether in the office or remotely. And IT admins use Okta to manage the employee lifecycle, granting access on onboarding and removing those privileges on termination.

Despite competition from bigger rivals like Microsoft, Okta’s neutrality gives it an advantage. Since the company does not sell cloud services or other software products, there is no conflict of interest with any technology. In fact, Okta has every reason to support as many different services, applications, and clouds as possible.

This flexibility has brought more than 10,000 customers to the Okta platform, enabling integrations with more than 7,000 applications and IT infrastructure providers. In particular, this scale creates a strong network effect. As new customers join, Okta collects more data (user behavior, end point safety signs, etc.), improving its ability to detect threats, increasing its value to all customers.

Okta has seen strong revenue growth in recent years and the company has posted positive free cash flow since fiscal 2020 (ended January 31, 2020).

Metric

2018

2021

TCCA

Returned

$ 260.0 million

$ 835.4 million

48%

Free movement of capital

($ 37.2 million)

$ 110.7 million

N / A

Data source: Okta SEC filings. Note: Fiscal year 2021 ended January 31, 2021. CAGR = compound annual growth rate.

Going forward, digital transformation is expected to be a powerful engine of growth for Okta. Businesses increasingly depend on cloud computing, software as a service, and remote working, all of which create a need for effective security. The Okta Identity Cloud meets this need.

As a caveat, Okta is probably the riskiest of the three stocks I just mentioned. It is not profitable, trades at 34 times sales and has a market capitalization $ 34 billion, which means it’s a smaller company and more expensive stock than either Microsoft or PayPal.

But that’s not necessarily bad. Okta’s smaller size could mean a bigger hike in the long run. In fact, in a recent interview, Marketing Director Kendall Collins said that Okta could possibly be bigger than Salesforce, a $ 200 billion software giant. If this prediction comes true, it would mean an increase of almost 500% for investors.

Teresa Kersten, an employee of LinkedIn, a subsidiary of Microsoft, is a member of the board of directors of The Motley Fool. Trevor Jennewine owns shares of Okta and PayPal Holdings. The Motley Fool owns stocks and recommends Microsoft, Okta, PayPal Holdings, and Salesforce.com. The Motley Fool recommends the following options: Long January 2022 $ 75 calls to PayPal Holdings. The Motley Fool has a disclosure policy.

The Motley Fool is a USA TODAY content partner providing financial news, analysis and commentary designed to help people take control of their financial lives. Its content is produced independently of USA TODAY.

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