How can buy-and-hold investors benefit from breakthroughs like big data, mobile and cloud computing? As tempting as it might be to chase the record profits that pure-play tech can produce, it might be worthwhile to look beyond the volatile industry.
Consider three of the biggest tech names: Apple, Microsoft and Dell. All are struggling with low valuations and unhappy shareholders. Constant upgrade cycles and hyper-competitive markets are not what everyone wants in a long-term investment. A less risky buy-and-hold option might be shares of a company that builds a better brand on the back of breakthrough technologies.
"Old-economy companies using technology to their advantage can really produce great things using the best of the new and the old," says Michael Pachter, technology research analyst for Wedbush Securities.
Here are six firms you might not think of as technology companies, but that are rewiring themselves to position their venerable brands for future growth:
Nordstrom. How does an old-world, luxury department store chain known for lush fashion displays and personal service survive in a world of one-click ordering? Remarkably well, actually.
"It's surprising that department stores have found themselves in exactly the right spot," says Morningstar analyst Paul Swinand. "Nordstrom is the model for how they can use their stores to display products and the website to display the breadth of what they offer." Nordstrom has invested in a number of innovative online retail companies such as HauteLook and Bonobos, which the company credits with lifting in-store sales as well. Its inventory turns over six times a year, which is about 25 percent greater than the industry average listed by the Retail Owners Institute. Swinand rates Nordstrom as "a good long-term stock to own" because of its tech-savvy operations.
Ford. Can a Detroit carmaker really be considered a technology company? No one would doubt that Tesla, the electric car pioneer from Palo Alto, Calif., is a technology innovator. But Ford might be more of a surprise. The carmaker has a Silicon Valley lab where it uses big data to research car drivers' behavior and other information. Its SYNC car software was created as an open system that allows it to partner with technology providers. In one application, insurer State Farm uses it to collect odometer readings so insurance customers can quality for a really safe driver rate that's verified online.
The automaker is ahead of most rivals when it comes to other advances, like fuel economy improvements and an aggressive push into electric vehicles. "Ford raised the bar in fuel-efficient vehicles – and that is a very critical part of environmental footprint that they addressed," says Rebecca Henson, a senior sustainability analyst at Calvert Investments. She cited the Fiesta and Focus as breakthrough car models at low price points and with high fuel efficiency. Kelley Blue Book lists three Ford cars – Focus Electric, C-Max Energi and the Lincoln MKZ Hybrid – in its top 10 "Green Cars" more than any other global automaker.
Henson did not make a forecast on Ford's future financial performance but says by meeting rising global demands for fuel efficiency, it is well-positioned to grow. It's also the only carmaker to avoid a U.S. bailout. She lauded Ford for "the foresight to develop a rainy day fund so it could weather future storms on its own," and also for its fuel-efficient products.
Nike. The Oregon-based global brand has extended its footprint into the high-tech world. Its wearable technology like the FuelBand bracelet lets people measure and track performance. The company's digital designers are looking at how electronic devices will connect people to the Internet so their data can be shared with friends, coaches or trainers.
It also shares code with partners and developers for the FuelBand and other products so they can create applications, such as music, based on Nike's platform. Similarly, the company opens up its planning tools so designers can work collaboratively on shoes and the materials used to make them.
Nike uses its raft of top-level sports names to promote the swoosh in all forms of media and is pushing hard for its customers' tweets and Facebook posts. It produces social media content for each of the major sports product categories like basketball, football and soccer, with each having its own site with relevant content. Does that all make Nike a technology company? Perhaps not, but its technology strategy gives it an edge over low-tech competitors, Swinand says. In a sign of its growing tech chops, a top Nike designer was recently poached by Apple.
Swinand says Nike's technology investments may not show up directly in sales figures, but they add to the company's brand advantage and customer stickiness, borrowing another high-tech buzzword. Its ability to mine the value of the brand recognition makes Nike stock attractive despite its pricey 25 times earnings present value, he says.
Johnson Controls. An old-line Rust Belt company once known for making building temperature gauges and car seats is now the leader in new car technology. It produces a wide range of fuel-efficiency products and is a main supplier of hybrid car batteries and control panels that monitor fuel use and manage the car's stability to limit fuel consumption. The seats it makes now for cars can shift weight automatically for fuel efficiency and comfort. It makes "infotainment" devices and control panels, and a wide range of electronic components for "smart car" interiors and enhanced performance. It's the focus on the environment – both in terms of reduced fossil fuel consumption and cleaner emissions – that makes it a favorite of Calvert Investments, which is focused on socially conscious investment.
Johnson Controls is also a Wall Street favorite as carmakers prepare to lift fleet-wide fuel ratings to 54.5 miles per gallon by 2025 under a U.S. mandate. "Johnson has retooled as a technology company and is now the go-to place for the highest-quality energy efficiency products and technology for the auto industry and buildings," Henson says.
Pure Technologies. Many investors haven't heard of this small technology company, but it plans to make a big name for itself by transforming decaying infrastructure with proprietary technology in water and other key areas. Calvert's Henson says the company's sound-sensing devices can measure the integrity of structures, including bridges and pipelines. Its tools monitor water and oil pipeline flows to avoid leaks, pollution and other potential threats. Pure Technologies makes many products aimed at repairing existing bridges and pipelines, which makes it a more compelling stock in a low-budget era for government.
Amazon. Amazon makes this list because it has transformed itself from a simple online retailer into a cutting-edge tech company, avoiding the fate of Alta Vista, Webvan and a host of other Internet also-rans, Pachter says. He considers Amazon an "excellent long-term buy," although he rates it "neutral" right now based on its present share price. It's a leader in cloud computer and data-mining services that were byproducts of the firm's "delivering people what they want" ethos. Also, while The Washington Post may be a personal investment of Amazon founder and CEO Jeff Bezos, his company continues to bet big in the digital device market with the Kindle, still the leading e-reader and a player in the tablet world. Digital products and e-books, including titles from Amazon's own book publishing division, are starting to generate significant sales.
When does a low-tech company become a high-tech company? That's hard to answer. But like Amazon, smart companies adopt technology to serve customers more efficiently and quickly.
"Companies have to keep themselves and their brands relevant, and new technology is a way to do it," Pachter says. "You have to keep reinventing yourself or you die."