As the markets have seen massive swoons lately, one of the biggest victims has become the tech sector.
When markets rose, tech equities became stocks to buy as this sector brought the innovation and often the profit growth needed to attract investors. Now, in a falling market, this dynamic has worked against tech. Investors sold off names such as Amazon (NASDAQ:AMZN) and Netflix (NASDAQ:NFLX) as valuations began to matter. Others have suffered as self-inflicted wounds, and the U.S.-China trade war, pushed traders out of many tech stocks.
As a result, many of these tech names trade at a substantial discount from their former highs. Some have become stocks to buy by virtue of modest price-to-earnings (P/E) ratios. Anyone wanting to profit from the current market pessimism should consider these tech equities as some of the best stocks to buy now:
Apple (AAPL)
Despite its huge fan base, and $1.06 trillion market cap, Apple (NASDAQ:AAPL) stock continues to suffer from a relative lack of respect. It tends not to command a high valuation despite boasting the largest cash hoard among publicly traded companies and its continued profit growth.
Admittedly, Apple has not replaced the creative edge it lost after the passing of Steve Jobs. Still, I expect with its position in the device market, it will continue to play a substantial role in driving tech innovation. Its largest sales driver, the iPhone, continues to drive sales and profits for the company.
Moreover, the rise of 5G by itself will inspire yet another replacement cycle in iPhones over the next few years. And 5G could easily drive the need for new hardware or replacement cycles in other Apple products as well. Also, that does not consider other tech advances that could ensure the growth of AAPL for years to come.
Despite a P/E ratio of 19.9 and predicted profit growth of 27.9% for this year, AAPL stock suffered along with its tech peers. Still, given these numbers, AAPL stock should remain on a stocks to buy list, particularly on a pullback. With a low P/E, high profit growth and its massive cash reserves, AAPL stock should prosper for years to come.
Facebook (FB)
Facebook (NASDAQ:FB) dominates the social media space and has become a major player in the world of online ads. As it’s the owner of four of the six apps with over one billion downloads, few have presented a competitive threat to this company.
However, a series of setbacks has made 2018 the worst year for FB stock since its IPO in 2012. The Cambridge Analytica scandal and accusations of political bias and Russian collusion dogged FB stock earlier this year. It also suffered the largest one-day market cap loss in the history of the market following its August earnings report. More recently, the founders of Instagram and WhatsApp parted ways with the company.
However, despite its tarnished reputation, I see nobody who can compete with Facebook. Weibo (NASDAQ:WB) and QQ operate only in China. Twitter (NYSE:TWTR) remains a niche play. Snap (NYSE:SNAP) has seen many of its key features copied by Facebook.
In addition to its competitive situation, Facebook’s multiple has become compelling. Due to its recent challenges, FB stock has fallen by nearly one-third from its 52-week high. The stock now trades at a P/E under 21. This comes despite a predicted profit growth rate of 33% this year and 15.5% for fiscal 2019.
The fact that Facebook counts a substantial percentage of the world’s population as users creates questions on where to find further growth. However, the company’s $42 billion cash hoard leaves the firm with options to build or buy new growth centers.
Though its scandals bring embarrassment and bearish sentiments, most firms tend to survive such challenges. Moreover, with the relatively low P/E and a continuation of double-digit profit growth for the foreseeable future, I believe the recent plunge has made FB one of the smart stocks to buy.
Intel (INTC)
Intel (NASDAQ:INTC), once the world’s largest chipmaker, has struggled to return to prominence since PCs fell out of favor. The company responded to the decline in PCs by moving to become a firm focused on data centers and the Internet of Things (IoT). While the company appears to have a viable plan to redefine itself, computer viruses and management turmoil have weighed on the stock in 2018.
Moreover, Intel has failed to maintain the dominance it enjoyed in the PC era. AMD (NASDAQ:AMD) played little brother to Intel for most of its history. However, it has bested INTC in many areas lately. Also, Nvidia (NASDAQ:NVDA) took the lead on chips related to artificial intelligence (AI) and virtual reality (VR). This forced Intel to partner with archrival AMD to compete in this area.
Still, while it has fallen behind, I think the selling in INTC stock has gone too far. INTC now trades at just over 11 times forward earnings. Moreover, Wall Street predicts an increase in net income of 20.2% for this year. They also expect average annual growth of 10.2% per year over the next five years.
Not only will stockholders enjoy a low P/E, but they will also receive payment while they wait for a recovery. Its annual dividend of $1.20 per share offers a yield to about 2.7%. Also, the previous history indicates this payout will rise in most years.
Without a doubt, in the chip industry, Intel has gone from dominant player to formidable competitor. Still, Intel has positioned itself to remain one of the more significant players in the data center and IoT industries. With a high dividend and a P/E ratio flirting with the single digits, INTC stock has become one of the more intriguing stocks to buy in the tech industry.
Micron Technology (MU)
Few American companies have seen more pain from the ongoing U.S.-China trade war than Micron (NASDAQ:MU). The memory chipmaker had enjoyed a rising stock price as a result of high memory prices. However, the trade war cast doubt on this market, and MU stock has fallen since.
In previous articles, I called MU stock a “proxy for memory chip prices.” As such, I sold my stake in the company when I saw prices come down. Indeed, MU now trades about 45% below its 52-week high.
I also recommend this with some hesitation, since I recently called MU stock a sell. However, the stock has fallen an additional 15% since I made that call.
Furthermore, valuations have become too compelling to ignore. Analysts forecast consensus profits of $10.51 per share for fiscal 2019. While that represents a drop from the $11.95 per share seen in 2018, it leaves the P/E ratio at only 3.4 times earnings!
That said, analysts forecast memory prices will continue to fall, taking Micron’s profit margins down as well. Only one analyst has attempted to predict profits in fiscal 2021. While this early prediction of $3.53 in earnings would represent a massive drop, it still leaves the 2021 forward P/E at only about 10 times earnings.
Historically, Micron often lost money in times of low memory prices. If MU stock is indeed turning into a money loser, investors need to stay out. But as long as profit forecasts and memory prices hold, MU remains one of the stocks to buy in the tech sector.
As of this writing, Will Healy did not hold a position in any of the aforementioned stocks. You can follow Will on Twitter at @HealyWriting.
