If investors have learned anything over the last few months, they have learned that seemingly unstoppable tech stocks have their limits. Even popular equities such as Amazon (NASDAQ:AMZN) and Netflix (NASDAQ:NFLX) saw shares plummet as investors dumped tech equities in droves.
Many stocks have seen a significant recovery since Christmas Eve. However, few have returned to pre-October highs. Many of these equities became victims of overselling. Pessimism can often take stocks down to low price-to-earnings (P/E) ratios. Such metrics usually indicate that some have become stocks to buy on sale rather than equities investors should put up for sale.
Many prominent tech stocks have likely reached that point. These five teck stocks offer both reasonable valuations and a commanding position within their niche of tech:
Admittedly, even when Apple (NASDAQ:AAPL) supported its $1 trillion-plus market cap, it was not considered expensive from a P/E standard. However, sales of the iPhone have failed to keep up with growth expectations, and AAPL stock still plunged as a result. Now, the company must make its way forward without the iPhone driving a majority of its revenue.
Apple appears positioned to make that change. Even if it fails to innovate on its own, AAPL holds $245 billion in cash, more than the gross domestic product (GDP) of all but 45 of the world’s countries. This gives AAPL the power to buy what it cannot create, though it already may have found the next growth niche. Former Apple CEO John Sculley believes that the healthcare-related features of the Apple Watch will become the company’s most significant innovation since the iPhone.
While investors wait for healthcare or another innovation to drive revenues, they can buy AAPL stock at a reasonable valuation. Thanks to the drop in the stock price, the forward P/E stands at 13.7. Moreover, the double-digit growth that suddenly turned negative in 2018 should return this year.
I do not expect an immediate recovery for Apple. Investors will need to see a new product category take hold before interest in Apple stock returns. However, with a low valuation and double-digit earnings increases in store for AAPL, the stock price should move higher over time.
Despite negligible involvement with the United States, the U.S.-China trade war, as well as a general slump in tech stocks, took its toll on Baidu (NASDAQ:BIDU). As the Chinese-language counterpart to Alphabet’s (NASDAQ:GOOG, NASDAQ:GOOGL) Google search engine, the company conducts little direct or indirect activity outside of its home country. Nonetheless, BIDU stock has fallen about 43% from its 52-week high.
Despite this slump, the company beat earnings estimates in its last report and raised guidance. Moreover, the drop from last year has taken the forward P/E to about 12.8. Analysts predict profit growth will come in at a modest 2.7% this year. However, they also expect to see a 25.6% increase in earnings next year.
BIDU stock comes with some risk. Since American investors cannot buy shares directly in China-based companies, Baidu stock buys one into a Cayman Islands-based holding company entitled to a share of the company’s profits. Moreover, while the U.S.-China trade war could end soon, the uncertainty will linger until both countries come to an agreement.
Still, with Google blocked and Baidu serving as the primary search engine for China’s 1.39 billion population, I think the recovery of BIDU stock becomes only a question of when.
In 2018, Facebook (NASDAQ:FB) suffered through its worst slump since soon after the 2012 IPO. Allegations related to enabling election interference as well as privacy concerns have weighed on the stock. The drop hit a crescendo with the single-largest one-day market cap loss in stock market history last summer. Moreover, Facebook’s failure to protect private data as well as compliance issues in the midst of the E.U.’s General Data Protection Regulation (GDPR) have also weighed on FB stock.
Despite these attributes, the buy case for FB stock remains. Even though FB has begun to recover from the 2018 slump, the stock trades at about 18.3 times earnings. Profits will probably see a modest decline this year. However, analysts forecast a 17.2% surge in profits in 2020, and further double-digit increases in subsequent years.
Moreover, FB stands out among tech stocks as the only mega-cap social media stock. It owns four of the six apps boasting one billion or more users. Furthermore, no site in this industry has challenged Facebook’s dominance. Twitter (NYSE:TWTR) will likely not venture beyond its microblogging niche. Snap’s (NYSE:SNAP) popularity among youth faces a serious challenge from the Facebook site Instagram.
Facebook will have to address its political and privacy-related challenges. However, with its dominance of the social media space unchallenged, FB stock will find itself slowed but not stopped by recent controversies.
Until the last quarter of 2018, Nvidia (NASDAQ:NVDA) appeared unstoppable. Having parlayed its gaming capabilities into data center, artificial intelligence (AI) and virtual reality (VR) applications, it supplanted Intel (NASDAQ:INTC) as the most important of the tech stocks in the semiconductor space.
However, once the crypto craze died off, the air of invincibility around NVDA stock died with it. Too many chips flooded the market, and NVDA plummeted along with most other tech stocks. The 2016-18 bull market in NVDA also had reached extremes. The P/E ratio had approached 60, and profit growth, while impressive, did not back up that growth.
Still, even without crypto, Nvidia’s involvement in AI, VR and gaming still make it arguably the most critical equity in the semi space. As our own James Brumley points out, Nvidia chips power the world’s fastest supercomputers. Their tech has also moved ahead of peers on the AI front.
Nvidia’s financial metrics have also become more favorable for buyers. The forward P/E ratio has fallen to a more reasonable 21.5. Profits will shrink this year as the industry continues to work off the oversupply in chips. However, they also believe the end of the chip glut will bring a 32.8% increase in profits next year. Although profiting from NVDA stock will take time, I think a wider adoption of data centers, AI and VR will help NVDA surpass its 2018 highs.
Over the last few years, Qualcomm(NASDAQ:QCOM) has become better-known for its patent disputes with Apple and its failed attempt to buy NXP Semiconductor (NASDAQ:NXPI) than for smartphone chips. However, amid its controversies, it still collects royalties on its 3G and 4G chips. Now, the Snapdragon 855 looks poised to help Nvidia profit from the rollout of 5G phones powered by Android.
5G will force phone upgrades over the next few years. Also, because 5G will enable more Internet of Things (IoT) devices, revenues and profit growth could go well beyond predicted levels.
Moreover, thanks to the failed merger, Qualcomm will buy back $30 billion worth of QCOM stock this year. If a smaller supply is not enough to persuade buyers, QCOM also includes a 4.7% dividend yield. Also, this payout has risen for eight straight years, even amid the patent dispute and the failed buyout.
Several other metrics favor buyers. As a result of last fall’s slump in tech stocks, QCOM trades at 12.2 times forward earnings. Wall Street expects tepid growth this year. However, they forecast 12.4% earnings growth in 2020, and double-digit increases in future years. Due to its critical involvement in 5G, Qualcomm will play a crucial role in upgrades over the next few years. The growing revenues and profits from these purchases should upgrade the price of QCOM stock as well.
Source: Investor Place