3 Plays on Virtual Reality

05/02/2016 7:00 am EST

Focus: STOCKS

CHAD FRASER

, MPL COMMUNICATIONS INC

If you tried virtual reality video games in the early 1990s, I don’t have to tell you how awful they were. But now virtual reality is getting another chance — and this time, the boom has legs, asserts Chad Fraser in Personal Finance.

Faster processor speeds and better graphics cards have made both virtual reality (VR) and augmented reality (AR) smooth, seamless experiences.

Facebook (FB) vaulted into the VR lead when it bought startup Oculus VR, whose headset, the Rift, began shipping March 28th. But three large caps tech stocks from our Growth Portfolio should also profit as the market lifts off.

Qualcomm (QCOM)

A convincing VR experience starts with leading-edge video, and that’s where mobile-device chipmaker Qualcomm aims to play a starring role. At the heart of that push is Qualcomm’s Snapdragon 820 chipset, which supports 4K Ultra HD video.

Sound is an often overlooked VR feature, and the 820 boasts 3D audio, which makes sounds seem like they’re coming from different directions, as in real life.

The stock trades with a 4.1% forward yield, at just 14.8 times its forecast 2016 earnings, below its five-year average forward price-to-earnings ratio of 16.7, and spends a high 22% of its sales on research and development.

Microsoft (MSFT)

Microsoft is taking aim at AR with its new HoloLens glasses. Powered by Windows 10, HoloLens (which doesn’t require a computer or smartphone to work) expands VR and AR beyond gaming to improve collaboration over long distances.

For now, AR is a long-term project. However, picture architects across the world making changes to a blueprint each can see.

Microsoft’s forward P/E ratio is around 18, above its five-year average of 14, after the share price gained 32% the past year. But that’s still reasonable given the company’s growth potential.

Apple (AAPL)

A review about an emerging tech trend wouldn’t be complete without Apple. It hasn’t had a lot to say about VR or AR so far, but recent acquisitions provide a clue of what Apple could be up to.

In February 2015, the company obtained a patent on a “head-mounted display apparatus” that appears to pair up with an iPhone.

In May 2015, it bought AR start-up Metaio, whose technology was used in Ikea’s virtual catalog and Ferrari’s AR showroom app. Then in November, Apple added Faceshift, a maker of motion-capture technology used in Hollywood films.

The company has a grab bag of other products set for launch this year, such as new versions of the Apple Watch and iPhone, as well as more far-off ventures, including, potentially, a self-driving car.

Meanwhile, Apple's forward P/E ratio of 11.8 remains below the stock’s five-year average of 12.5. The shares yield 1.9%.

Subscribe to Personal Finance here…

By Chad Fraser of Personal Finance

More from MoneyShow.com:

Quickel's Picks: Tech & Healthcare

Tech Buybacks: Brocade & Cypress

Western Digital: "Dirt Cheap"

Related Articles on STOCKS