It never fails to surprise me how often I see retail investors buying average tech companies with almost nothing in the way of competitive advantages, track records, profitability, or dominant market positions.
This kind of investor behaviour is even more confounding when you consider that the ASX is blessed with three leading online advertising portals that possess global growth potential and competitive advantages thanks to their dominant market positions in Australia.
Here then are three of the best tech stocks on the ASX in my opinion that will all benefit from the increasing popularity of the internet and their market-leading positions. Of course investors must consider valuations before buying these businesses but patience and wider market swings will usually provide opportunities to build a position over time.
Let's take a quick look at what are probably Australia's three best ways to profit from the growth of the internet.
REA Group Limited (ASX: REA) is the expertly managed property portal behind the realestate.com.au website. It has a rival in Fairfax Media Limited's (ASX: FXJ) Domain, but REA Group's management generally seems one step ahead of its customers (estate agents) and competitors in a market that is evolving. The group is also aggressively expanding into high-growth Asian markets. It's scalability means a high return on equity although with the stock at $56.90 it looks a hold for now.
Carsales.com Ltd (ASX: CAR) operates Australia's dominant carsales.com website among others and also has a spectacular track record of revenue, profit and dividend growth. It too has interests in high-growth emerging markets like South Korea that may perform well in the years ahead. The stock sells for $11.40, which looks on the expensive side given the expected growth rates and I would call it a hold at current valuations.
SEEK Limited (ASX: SEK) is the founder-led online employment business that reinvests heavily to protect its competitive advantages and develop long-term success in overseas markets. It does face serious competition from the likes of Linkedin, although I think the stock looks a buy on a valuation basis at $15.17 per share. It is by far the most advanced of the three in its overseas operations and could deliver hefty total returns over the years ahead.
