Tech stocks have had a huge run throughout the bull market with the Technology Select Sector SPDR (NYSE: XLF) surging 280% since March 2009. That’s well above the 226% gain in the broader S&P 500 and helped lift the market to price multiples rarely seen in the past.

Gains in the sector tracked the broader market closely until June 2016 when tech exploded, beating the index by 23% over nearly two years.

#-ad_banner-#That outperformance has grown the sector to 27% of S&P 500, the highest it’s been since the final four months of the tech bubble.

Much of the explosive tech sentiment has been given to the largest players in the group, the FAANG stocks (Facebook, Apple, Amazon, Netflix, Google) which collectively surged an average of 51% last year.

But the narrative has changed with some major problems at some of these tech leaders and that’s creating chaos for the broader market.

The  Volatility Index (VIX) only broke 13 twice last year and averaged just 11.1 throughout 2017… it’s averaged 17.5 this year and hasn’t been below 13 since January.

Does the tech selloff mean an end to the historic bull market? Are there still leaders in the space that can give you exposure to tech growth without the risk in the biggest names?

Is The Tech Selloff About To Kill The Bull?
The massive selloff in tech began mid-March with a firestorm of headlines hitting the largest names.

Facebook (NYSE: FB) is fighting daily headlines of privacy concerns for users. CEO Mark Zuckerberg had to issue an apology after a marketing firm was able to access personal information from millions of user profiles. President Trump has repeatedly tweeted against Amazon’s (Nasdaq: AMZN) use of the Postal Service, and the European Union has questioned control of data by several tech companies.

Every one of the FAANG stocks has underperformed the S&P 500 so far this year, with an average loss of 12.8% for the group.

The problem is that the five companies represent a combined market cap of $2.9 trillion, more than a tenth of the total market’s capitalization. Plunging investor sentiment for the group is weighing on the overall market and threatening a deeper correction.

Look Outside The FANGs For Safety And Returns In Tech
There is still good reason to be bullish on tech and even the broader market though.

Consumer and business spending are on pace for solid growth this year. Research firm Forrester forecasts global tech spending by businesses to grow by 6.1% this year, well above the 3.9% growth recorded in 2017.

Not all the names in tech benefited from rising investor sentiment around the tax cuts, but the effect of lower rates will soon be showing through earnings. Combined strength in fundamentals with billions in repatriated profits and prices could get a boost.

Smart picks in tech can still be found if you look for names with solid fundamentals and strong catalysts to the upside.

Cerner Corp (Nasdaq: CERN) is the largest pure-play health care IT (HCIT) company in the world with clients in 30 countries and a footprint at 70 of the top 100 global health systems by patient revenue. The company is the market leader in health systems outside the United States with 28% of an otherwise fragmented market.

Policy uncertainty in Washington around health care has meant some hospitals are delaying HCIT service implementations. That’s put the shares under pressure since September, but could create a potential boom in demand down the road.

Even against this backdrop, bookings at Cerner increased 16% last year and revenue grew 7% to $5.1 billion from 2016. The company’s backlog jumped 10% to $17.5 billion, more than three years’ worth of sales.

Growing complexity in reimbursements, an aging population and the need to streamline costs against ever-higher health care costs all drive demand for health care systems. Once a client implements an IT system, high switching costs and implementation periods of up to 24 months make for extremely reliable service revenue. Recurring support, maintenance and service to customers accounts for 72% of Cerner revenue.

The company reports balance sheet cash of $1 billion against just $527 million in debt and free cash flow of $671 million annually. The company has repurchased nearly $900 million in shares over the last two years.

LG Display (NYSE: LPL) is a leader in computer and television monitors with 36% of the global market in computer monitors, 29% of the TV display market, 21% of the notebook computer market and 28% of the market for tablet display.

LG has a world-class R&D pipeline with over 33,000 global patents and some impressive 2017 accomplishments including the world’s first Crystal Sound OLED product, the first 88-inch Ultra Stretch display and the first four-sided borderless monitor.

As more of the world continues to spend more of its time in front of a computer or TV screen, LG will continue to book higher growth.

Strength in OLED display has been offset by lagging sales for legacy products like LCD over the last couple of years but that’s starting to turn. The average selling price for LG display panels increased 5% last quarter over the previous, reversing a trend of falling prices.

Geopolitical fears have added to investor concerns and the shares are trading for just 5.3-times trailing earnings, a 42% discount on the average multiple of 9.1-times over the last 12 quarters.

Sabre Corp (Nasdaq: SABR) is the second largest global travel distribution system by revenue with 36% of global air bookings share and the market leader outside the United States. The company is also developing a faster-growing IT solutions division that already accounts for 29% of revenue.

Heavy spending on tech infrastructure and other systems have hit profitability over the last year. Investor sentiment has weakened even though the company has produced revenue growth of 11% annualized over the last three years.

As the capital investment plans come to a close, cash flow is likely to surprise on the upside. The company’s new cloud-based Red Workspace product is the first of its kind and has already won Sabre a key contract.

Sabre produces over $360 million in free cash flow annually and will add to that as capital spending decreases and sales continue higher. The combined dividend payout of $155 million and share repurchase of $109 million last year amounts to a 4.6% cash return with the potential to expand further.

Risks To Consider: While weakness in tech may not affect these names as much because of strong fundamentals, a broader market selloff could dent investor sentiment and weigh on the shares.

Action To Take: Look beyond the most popular names in technology stocks for strong picks with solid fundamentals and upside potential.