- A number of well-known, strong companies have now become undervalued tech stocks thanks to the latest bear market.
- Alphabet (GOOGL, GOOG) has an immense balance sheet, top-notch assets and a robust buyback.
- Meta (FB) has strong platforms (assets), a solid balance sheet and a cheap valuation.
- Everyone seems to have forgotten about Salesforce (CRM), but it now has a reasonable valuation amid strong growth.
Thanks to the current bear market on Wall Street, we have a series of undervalued tech stocks. That’s pretty much the only silver lining to the current market environment, which is hurting every investor who’s not in cash or short. Year-to-date (YTD), the Nasdaq has fallen 27.6%, while the S&P 500 is down roughly 17%.
Moreover, inflation is raging and many growth stocks have seen their share price come down by 70% to 80% or more. Thankfully, the names on this list haven’t come down quite as far. However, they have come down quite a bit off the high.
Is it fair? It’s not our job to say. Even if it’s not fair, there’s nothing that can be done in the short term. Over the long term, though, patience and discipline can win out over short-term overreactions.
When I look at the companies I mentioned earlier, I look at well-capitalized, profitable and reasonably-valued entities. That doesn’t mean the market will bounce tomorrow or reward these stocks in the next few weeks or months. Likewise, it doesn’t mean that they have seen the low either.
However, by peeling back the layers of these businesses, we can identify a good deal for the long term, even if it gets cheaper in 2022. Therefore, these three companies stand out as undervalued stocks to consider right now.
|GOOGL, GOOG||Alphabet||$2,092.34, $2,091.68|
Undervalued Tech Stocks to Buy: Alphabet (GOOGL, GOOG)
I love writing about Alphabet (NASDAQ:GOOGL, NASDAQ:GOOG) because even though the stock has been hit — like many other companies — the business remains robust. The firm boasts one of the strongest balance sheets in the market and has a powerful share buyback plan soaking up gobs of stock.
I often refer to Alphabet as owning the internet’s Boardwalk and Park Place, with its Google.com and YouTube.com sites — the two most popular websites in the world. Despite these observations, the stock trades at just 19 times earnings. Furthermore, analysts expect 15% to 16% revenue growth this year and next year, while Alphabet has $134 billion in cash and short-term investment.
So, what’s the problem?
Despite its low valuation, enormous balance sheet and recent addition of $70 billion to its buyback plan, the stock is out of favor. Bear markets strike indiscriminately, as selling hits virtually every stock in the market. However, the fear with Alphabet is that a recession will kill advertising and thus, weigh on its revenue, profit and cash flow.
In that scenario, it’s true: all of those would take a hit. However, it’s also true that advertising is usually one of the last expenditures to get cut and one of the first to bounce back, as companies are scrambling for sales.
Meta (NASDAQ:FB) is a tough one and a bit controversial at the moment. That comes as the stock is down more than 50% from the all-time high. Aside from the obvious hot topic of social media and its role in society, Meta has gotten to a point where we must pay attention to the valuation.
The stock suffered a peak-to-trough decline of 53% and it’s not guaranteed that the lows are in. That said, this stock trades at a paltry 15.5 times this year’s earnings and 13 times next year’s earnings estimates.
If you can’t tell by that breakdown, analysts expect a slowdown in earnings this year. That’s as Meta regroups a bit and sorts through various expenses and user-growth issues. However, it’s estimated that revenue will grow 7.4% this year before accelerating up to 16.4% growth in 2023.
Is Meta a slam dunk? Not necessarily. However, at 13 to 16 times earnings with robust margins, a strong balance sheet and four of the top 10 mobile apps, it may be worthwhile to begin accumulating the name. And that makes FB stock one of the top undervalued stocks to buy right now.
Undervalued Tech Stocks to Buy: Salesforce (CRM)
Has everyone completely forgotten about Salesforce (NYSE:CRM) now? I feel like I haven’t heard about this stock in months, maybe even in several quarters. The talk is either about FAANG names finally coming under pressure or high-growth stocks getting crushed.
Yet, this is a great company with strong growth and a reasonable valuation. For years, bears fought the rise in Salesforce stock because of its high valuation. Well, now shares trade at just 33 times this year’s earnings estimates.
Salesforce has gone from an expensive name to one of our undervalued tech stocks. Part of that’s due to the stock’s 50% haircut from its highs. However, another part of it is due to the company’s robust business.
When I look at earnings estimates for this next year, 2024, 2025 and 2026, they continue to creep higher. That’s despite the 50%-plus reduction we’ve seen in the stock price. And despite revenue estimates appearing to level out, don’t sleep on Salesforce’s ability to succeed.
In turn, CRM stock is one for long-term tech investors to gobble up.
On the date of publication, Bret Kenwell did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.