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Feb. 10, 2020, 5:38 p.m. EST

Looking for another Apple or Amazon? These stocks have one important thing in common with tech’s big winners

The companies, including AMD, NextEra Energy and Vertex Pharmaceuticals, improved their pricing power as sales grew rapidly

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By Philip van Doorn, MarketWatch


Bloomberg
Advanced Micro Devices CEO Lisa Su. The chip maker reported a 50% increase in quarterly sales from a year earlier, while its gross profit margin widened.

The biggest U.S. technology companies are so dominant, it’s likely you have a relatively large amount of money invested in them because they are heavily weighted in index funds and ETFs.

That’s why it’s important to regularly review them, even if you don’t own individual shares.

Halfway through earnings season, there are a number of other companies doing something that most of the tech giants have been doing: Maintaining pricing power for their goods and services, even as they increase sales rapidly.

The FAANGs and Microsoft

You’re probably familiar, or over -familiar, with the FAANG group of tech companies. These are Facebook /zigman2/quotes/205064656/lastsale FB -2.53% , Apple /zigman2/quotes/202934861/lastsale AAPL -1.44% , Amazon.com /zigman2/quotes/210331248/lastsale AMZN -0.64% , Netflix /zigman2/quotes/202353025/lastsale NFLX -2.25% and Alphabet /zigman2/quotes/205453964/lastsale GOOG -2.05%   /zigman2/quotes/202490156/lastsale GOOGL -2.18% , which is Google’s holding company. But that group doesn’t include Microsoft /zigman2/quotes/207732364/lastsale MSFT -0.92% , which certainly should be included in a list of rapidly growing tech giants.

So here’s a list of the largest four publicly traded U.S. companies by market capitalization, followed by Facebook and Netflix, with sales growth and gross-margin comparisons:

Company Ticker Market cap ($ billions) Sales growth - most recent quarter from year-earlier quarter Gross margin - most recent quarter Gross margin - year-earlier quarter
Apple Inc. $1,351 8.7% 38.10% 37.59%
Microsoft Corp. $1,326 14.0% 66.51% 61.64%
Alphabet Inc. Class A $1,059 17.7% 54.38% 54.23%
Amazon.com Inc. $998 20.8% 38.27% 38.13%
Facebook Inc. Class A $491 24.6% 83.44% 83.47%
Netflix Inc. $157 30.6% 36.61% 34.71%
Source: FactSet

You can click on the tickers for more about each company.

These numbers are all for quarters ended Dec. 31. The combined market capitalization for the group is $5.38 trillion, or 20% of the valuation of the entire S&P 500 /zigman2/quotes/210599714/realtime SPX -1.51% .

A company’s gross margin is its sales, less the cost of goods sold, divided by sales. It’s a measure of pricing power.

If a company’s gross margins have been narrowing, it could indicate that discounting is necessary to defend market share. It may also be a temporary phenomenon, as a company tries to take share from rivals.

It’s always good to see the gross margin widening while sales are increasing, while a prolonged narrowing of the margin could indicate big trouble, especially if sales aren’t growing significantly. (Gross margin numbers aren’t available for most financial companies, including banks and insurers.)

All these tech giants except for Apple showed double-digit sales growth, although Apple’s sales increase was quite an improvement from previous quarters, as the iPhone maker worked through the difficulties caused by the trade rift between the U.S. and China. Meanwhile, Apple’s gross margin improved.

Netflix was the sales-growth winner, and it’s instructive to see how much higher Facebook’s gross margin is than the others.

Other companies follow suit

Through Feb. 3, 54% of S&P 500  companies had reported results for fiscal quarters ended Oct. 25 or later.

Leaving aside the tech giants listed above, here are 23 companies among the S&P 500 that have reported sales increases of at least 10% this earnings season, while also expanding their gross margins. The list is sorted by sales growth:

Company Ticker Market cap ($ billions) Sales growth - most recent quarter from year-earlier quarter Gross margin - most recent quarter Gross margin - year-earlier quarter
Vertex Pharmaceuticals Inc. /zigman2/quotes/202259802/lastsale VRTX $60 63.6% 86.91% 85.84%
Alexandria Real Estate Equities Inc. /zigman2/quotes/206543290/lastsale ARE $20 62.7% 53.21% 36.96%
Advanced Micro Devices Inc. /zigman2/quotes/208144392/lastsale AMD $53 49.9% 44.62% 37.84%
Invesco Ltd. /zigman2/quotes/200294387/lastsale IVZ $8 48.8% 69.70% 65.12%
ServiceNow Inc. /zigman2/quotes/202729495/lastsale NOW $65 33.0% 77.78% 76.50%
Autodesk Inc. /zigman2/quotes/209828392/lastsale ADSK $44 26.3% 89.40% 88.47%
Electronic Arts Inc. /zigman2/quotes/206954087/lastsale EA $31 24.8% 67.80% 67.16%
Hess Corp. /zigman2/quotes/203832174/lastsale HES $17 24.6% 8.67% -5.26%
Alexion Pharmaceuticals Inc. /zigman2/quotes/206262068/lastsale ALXN $22 23.7% 91.74% 84.20%
Intuitive Surgical Inc. /zigman2/quotes/204935713/lastsale ISRG $65 22.1% 70.13% 70.06%
Align Technology Inc. /zigman2/quotes/200300692/lastsale ALGN $20 21.7% 72.63% 72.52%
BlackRock Inc. /zigman2/quotes/207946232/lastsale BLK $82 21.6% 83.32% 79.21%
Copart Inc. /zigman2/quotes/200378896/lastsale CPRT $23 20.2% 44.85% 41.45%
Conagra Brands Inc. /zigman2/quotes/200394144/lastsale CAG $16 18.3% 28.54% 28.31%
NextEra Energy Inc. /zigman2/quotes/200558509/lastsale NEE $130 17.8% 33.30% 25.37%
Biogen Inc. /zigman2/quotes/201531540/lastsale BIIB $49 16.6% 87.82% 82.03%
PayPal Holdings Inc. /zigman2/quotes/208054269/lastsale PYPL $137 16.4% 44.93% 40.20%
D.R. Horton Inc. /zigman2/quotes/202032328/lastsale DHI $22 14.3% 23.29% 21.82%
ResMed Inc. /zigman2/quotes/204675483/lastsale RMD $24 13.1% 56.86% 56.50%
T. Rowe Price Group /zigman2/quotes/203200152/lastsale TROW $32 12.5% 86.10% 82.40%
MSCI Inc. Class A /zigman2/quotes/202905332/lastsale MSCI $25 12.4% 77.64% 74.09%
Lamb Weston Holdings Inc. /zigman2/quotes/205501174/lastsale LW $13 11.8% 27.97% 27.32%
Idexx Laboratories Inc. /zigman2/quotes/205324043/lastsale IDXX $24 10.2% 54.70% 54.41%

No small set of figures can tell you the real story about any company’s recent success. So if there are any that interest you as individual investments, you had better do plenty of homework to understand why sales increased so significantly.

Then you need to form your own opinion as to whether the company’s business strategy will allow it to remain very competitive for at least the next decade.

Don’t miss: These companies have the most at stake when the world clamps down on plastic pollution

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/zigman2/quotes/205064656/lastsale
US : U.S.: Nasdaq
$ 154.18
-4.01 -2.53%
Volume: 25.98M
April 3, 2020 4:00p
P/E Ratio
23.96
Dividend Yield
N/A
Market Cap
$439.48 billion
Rev. per Employee
$1.57M
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$ 241.41
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$ 1,906.59
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82.83
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N/A
Market Cap
$949.21 billion
Rev. per Employee
$359,671
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22.32
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$ 1,092.70
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$ 238.31
-3.85 -1.59%
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52.90
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N/A
Market Cap
$61.79 billion
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$1.22M
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Market Cap
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Market Cap
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15.88%
Market Cap
$3.58 billion
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$ 249.57
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Market Cap
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$ 139.00
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$ 33.52
-1.78 -5.04%
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Dividend Yield
2.98%
Market Cap
$10.23 billion
Rev. per Employee
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$ 89.77
-0.58 -0.64%
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8.37
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Market Cap
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Rev. per Employee
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$ 462.47
-5.25 -1.12%
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Dividend Yield
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Market Cap
$53.99 billion
Rev. per Employee
$673,819
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$ 154.20
+2.13 +1.40%
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Market Cap
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Rev. per Employee
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$ 418.07
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Market Cap
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Rev. per Employee
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$ 61.80
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$ 31.21
+1.28 +4.28%
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Dividend Yield
2.72%
Market Cap
$15.20 billion
Rev. per Employee
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$ 221.64
-4.81 -2.12%
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28.55
Dividend Yield
2.53%
Market Cap
$108.37 billion
Rev. per Employee
$1.15M
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$ 300.51
-3.96 -1.30%
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Market Cap
$52.31 billion
Rev. per Employee
$1.55M
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$ 92.39
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Market Cap
$108.37 billion
Rev. per Employee
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$ 32.14
-0.46 -1.41%
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Dividend Yield
2.18%
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$ 152.97
+2.84 +1.89%
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$ 95.19
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Philip van Doorn covers various investment and industry topics. He has previously worked as a senior analyst at TheStreet.com. He also has experience in community banking and as a credit analyst at the Federal Home Loan Bank of New York.

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