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Jan. 29, 2022, 8:37 a.m. EST

You can still find a haven in tech stocks: These 20 offer the safety net of highly stable profits

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By Philip van Doorn

Even though it is a repeat pattern, the daily grind of a stock market correction can be surprising to investors following a bull market.

This Wall Street Journal headline sums up the action so far in 2022, as investors flee some of the more-speculative stocks: With rate increases looming, investors dump shares of money-losing companies.

Analysts at the Journal concluded that “shares of unprofitable companies in the Nasdaq Composite Index have skidded while their profitable counterparts have traded nearly flat.”

Below is a screen of technology companies in the S&P 500 Index /zigman2/quotes/210599714/realtime SPX -0.81% showing which ones have had the highest average operating margins over the past five years. Such consistent profit-makers might be considered to be safer plays when investors fear rising interest rates.

During the earlier phases of the coronavirus pandemic, federal stimulus and other efforts to help businesses stay afloat, and concurrent moved by the Federal Reserve to lower interest rates and increase the money supply, led to a tremendous move of cash from the debt markets into U.S. stocks.

And all that new money fed a frenzy of initial public offerings, including those circumventing the usual IPO process with quick offerings through special purpose acquisition companies, or SPACs.

Those stocks are included in the Nasdaq Composite Index /zigman2/quotes/210598365/realtime COMP -2.35% , which as of 10:10 a.m. ET on Jan. 25 was down 2.9%, for a decline of 17% from its intraday high on Nov. 22. The S&P 500 Index was down 2.6% for the session, for a decline of 11% from its Jan. 4 high, and the Dow Jones Industrial Average /zigman2/quotes/210598065/realtime DJIA +0.15% was down 2.1% for the day and down 9% from its high that was set on Jan. 5.

Screen for big-tech profits

The Nasdaq is heavily loaded with technology stocks, and many of those companies trade high to earnings because they are at early stages. Many others aren’t yet profitable.

So the following screen begins with the 76 companies in the S&P 500 information technology sector and then adds several tech players in the communication services sector, such as Netflix Inc. /zigman2/quotes/202353025/composite NFLX -3.79% , Meta Platforms Inc. /zigman2/quotes/205064656/composite FB -7.62% , Alphabet Inc. /zigman2/quotes/202490156/composite GOOGL -4.95% and Activision Blizzard Inc. /zigman2/quotes/200717283/composite ATVI -0.22% , which has agreed to be acquired by Microsoft Corp. for $69 billion in cash, in a deal that is undergoing antitrust scrutiny .

From the consumer discretionary sector, Tesla Inc. /zigman2/quotes/203558040/composite TSLA -6.93% and Amazon.com Inc. /zigman2/quotes/210331248/composite AMZN -3.21% were also added to the list, bringing the initial screen up to 85 companies.

We looked back at the companies’ operating margins for the past 20 reported quarters, using data provided by FactSet. A company’s operating margin is its profit per dollar of revenue after paying for the cost of production, including labor and materials, but before interest, taxes and some one-time items that can distort earnings results.

Here are the 20 companies from our initial screen of 85 tech companies in the S&P 500 that have had the highest average operating margins over the past 20 years. The list also includes the minimum and maximum margins during that five-year period:

Company Ticker Average operating margin – 20 quarters Maximum operating margin Minimum operating margin
Visa Inc. Class A /zigman2/quotes/203660239/composite V 68.99% 73.10% 65.59%
VeriSign Inc. /zigman2/quotes/205260150/composite VRSN 67.57% 70.38% 63.84%
Netflix Inc. /zigman2/quotes/202353025/composite NFLX 60.83% 65.82% 54.97%
Mastercard Inc. Class A /zigman2/quotes/207581792/composite MA 58.35% 62.70% 51.85%
Fleetcor Technologies Inc. /zigman2/quotes/205312429/composite FLT 54.08% 58.01% 39.98%
Micron Technology Inc. /zigman2/quotes/205710729/composite MU 51.44% 66.99% 35.21%
Meta Platforms Inc. Class A /zigman2/quotes/205064656/composite FB 50.69% 63.25% 41.03%
Texas Instruments Inc. /zigman2/quotes/202237907/composite TXN 48.50% 56.11% 43.68%
Broadcom Inc. /zigman2/quotes/200646538/composite AVGO 46.47% 55.73% 40.40%
Intel Corp. /zigman2/quotes/203649727/composite INTC 44.49% 51.69% 38.29%
Microsoft Corp. /zigman2/quotes/207732364/composite MSFT 44.24% 51.75% 38.59%
Oracle Corp. /zigman2/quotes/202180826/composite ORCL 43.74% 49.02% 39.33%
Paychex Inc. /zigman2/quotes/202030365/composite PAYX 41.89% 46.81% 36.33%
Analog Devices Inc. /zigman2/quotes/201631938/composite ADI 41.13% 46.31% 27.66%
Skyworks Solutions Inc. /zigman2/quotes/201417573/composite SWKS 40.15% 43.52% 33.02%
Jack Henry & Associates Inc. /zigman2/quotes/201857446/composite JKHY 39.47% 43.77% 34.73%
Activision Blizzard Inc. /zigman2/quotes/200717283/composite ATVI 38.95% 47.78% 26.82%
KLA Corp. /zigman2/quotes/209248041/composite KLAC 38.81% 43.36% 31.72%
Fidelity National Information Services Inc. /zigman2/quotes/207166559/composite FIS 38.78% 45.21% 29.86%
Microchip Technology Inc. MCHP 38.10% 42.67% 31.88%
Source: FactSet

A screen on one data element can only be a starting point for further research. You can click the tickers for more about each company. Click here for Tomi Kilgore’s detailed guide to the wealth of information available for free on the MarketWatch quote page.

Don’t miss:   Here are Wall Street’s favorite Nasdaq stocks as ‘signals around bottoms are starting to appear’

/zigman2/quotes/210599714/realtime
US : S&P US
3,941.48
-32.27 -0.81%
Volume: 2.44B
May 24, 2022 4:55p
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/zigman2/quotes/210598365/realtime
US : Nasdaq
11,264.45
-270.83 -2.35%
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May 24, 2022 5:16p
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/zigman2/quotes/210598065/realtime
US : Dow Jones Global
31,928.62
+48.38 +0.15%
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US : U.S.: Nasdaq
$ 180.34
-7.10 -3.79%
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P/E Ratio
16.37
Dividend Yield
N/A
Market Cap
$83.27 billion
Rev. per Employee
$2.69M
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/zigman2/quotes/205064656/composite
US : U.S.: Nasdaq
$ 181.28
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$1.66M
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/zigman2/quotes/202490156/composite
US : U.S.: Nasdaq
$ 2,119.40
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19.17
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N/A
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Rev. per Employee
$1.72M
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US : U.S.: Nasdaq
$ 77.03
-0.17 -0.22%
Volume: 4.91M
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P/E Ratio
24.39
Dividend Yield
0.61%
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Rev. per Employee
$846,633
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/zigman2/quotes/203558040/composite
US : U.S.: Nasdaq
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$699.20 billion
Rev. per Employee
$626,347
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US : U.S.: Nasdaq
$ 2,082.00
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P/E Ratio
50.21
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Market Cap
$1094.33 billion
Rev. per Employee
$297,107
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US : U.S.: NYSE
$ 202.63
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P/E Ratio
32.58
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$432.17 billion
Rev. per Employee
$1.25M
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$ 166.62
-0.09 -0.05%
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P/E Ratio
23.42
Dividend Yield
N/A
Market Cap
$18.26 billion
Rev. per Employee
$1.49M
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US : U.S.: Nasdaq
$ 180.34
-7.10 -3.79%
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P/E Ratio
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Dividend Yield
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/zigman2/quotes/207581792/composite
US : U.S.: NYSE
$ 340.69
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P/E Ratio
35.45
Dividend Yield
0.58%
Market Cap
$338.99 billion
Rev. per Employee
$828,667
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/zigman2/quotes/205312429/composite
US : U.S.: NYSE
$ 232.52
-6.24 -2.61%
Volume: 447,911
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P/E Ratio
21.96
Dividend Yield
N/A
Market Cap
$18.47 billion
Rev. per Employee
$310,758
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/zigman2/quotes/205710729/composite
US : U.S.: Nasdaq
$ 66.62
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P/E Ratio
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Dividend Yield
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Rev. per Employee
$724,860
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US : U.S.: Nasdaq
$ 181.28
-14.95 -7.62%
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P/E Ratio
13.71
Dividend Yield
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Market Cap
$531.10 billion
Rev. per Employee
$1.66M
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US : U.S.: Nasdaq
$ 167.86
-2.07 -1.22%
Volume: 5.12M
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P/E Ratio
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Dividend Yield
2.74%
Market Cap
$156.70 billion
Rev. per Employee
$611,613
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/zigman2/quotes/200646538/composite
US : U.S.: Nasdaq
$ 524.20
-2.16 -0.41%
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Dividend Yield
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Market Cap
$214.90 billion
Rev. per Employee
$1.43M
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/zigman2/quotes/203649727/composite
US : U.S.: Nasdaq
$ 41.67
-0.33 -0.79%
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P/E Ratio
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Dividend Yield
3.50%
Market Cap
$171.74 billion
Rev. per Employee
$641,652
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/zigman2/quotes/207732364/composite
US : U.S.: Nasdaq
$ 259.62
-1.03 -0.40%
Volume: 29.04M
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P/E Ratio
27.09
Dividend Yield
0.96%
Market Cap
$1949.41 billion
Rev. per Employee
$1.06M
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/zigman2/quotes/202180826/composite
US : U.S.: NYSE
$ 69.03
-1.01 -1.44%
Volume: 6.64M
May 24, 2022 4:04p
P/E Ratio
26.47
Dividend Yield
1.85%
Market Cap
$186.88 billion
Rev. per Employee
$316,879
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/zigman2/quotes/202030365/composite
US : U.S.: Nasdaq
$ 117.84
-0.37 -0.31%
Volume: 1.63M
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P/E Ratio
31.47
Dividend Yield
2.68%
Market Cap
$42.68 billion
Rev. per Employee
$299,773
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/zigman2/quotes/201631938/composite
US : U.S.: Nasdaq
$ 161.85
+0.30 +0.19%
Volume: 3.17M
May 24, 2022 4:00p
P/E Ratio
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Dividend Yield
1.88%
Market Cap
$84.54 billion
Rev. per Employee
$394,930
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/zigman2/quotes/201417573/composite
US : U.S.: Nasdaq
$ 99.88
-2.39 -2.34%
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May 24, 2022 4:00p
P/E Ratio
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Dividend Yield
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Market Cap
$16.46 billion
Rev. per Employee
$479,391
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/zigman2/quotes/201857446/composite
US : U.S.: Nasdaq
$ 183.85
+1.50 +0.82%
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P/E Ratio
37.74
Dividend Yield
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Rev. per Employee
$284,555
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/zigman2/quotes/200717283/composite
US : U.S.: Nasdaq
$ 77.03
-0.17 -0.22%
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P/E Ratio
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Dividend Yield
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/zigman2/quotes/209248041/composite
US : U.S.: Nasdaq
$ 330.09
-11.09 -3.25%
Volume: 1.31M
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P/E Ratio
16.02
Dividend Yield
1.27%
Market Cap
$50.92 billion
Rev. per Employee
$764,943
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/zigman2/quotes/207166559/composite
US : U.S.: NYSE
$ 100.51
-1.20 -1.18%
Volume: 3.25M
May 24, 2022 4:03p
P/E Ratio
68.32
Dividend Yield
1.87%
Market Cap
$62.12 billion
Rev. per Employee
$217,631
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