The rotation out of technology stocks continues, with the Nasdaq Composite index down 2% in the past month versus a 12% gain in the Russell 2000 index comprised of small-cap stocks. However, the decline in the Nasdaq does not reflect the huge selloff that’s taken place in many individual technology stocks in recent weeks. Several of the mega-cap tech stocks that led the rally in this year’s first half are down more than 10%.
The decline in technology stocks comes despite the fact that many companies have reported strong second-quarter financial results and have other catalysts that should be driving their share prices higher. For long-term investors, an opportunity has opened to buy stocks of great companies on the dip. It’s not clear how long the current rotation will last, so investors should act quickly.
Here are three stocks to buy amid the big tech tumble.
IBM (IBM)
Rotation or not, tech giant IBM (NYSE:IBM) just delivered another strong earnings report. It’s the latest in a string of better-than-expected financial results for the company. For this year’s second quarter, IBM announced EPS of $2.43 compared to $2.20 expected on Wall Street. Revenue in the April through June quarter totaled $15.77 billion, which surpassed consensus estimates of $15.62 billion.
The company, which provides hardware, software and consulting services, attributed the strong results to a rebound in technology spending, as well as growing expenditures on artificial intelligence (AI). IBM said that its book of business for generative AI now stands at $2 billion, double the amount it was in April of this year. The company is also in the process of acquiring software firm HashiCorp (NASDAQ:HCP) for $6.4 billion, which should be accretive to its earnings.
IBM stock is up 18% on the year but trades at a reasonable valuation of 19 times future earnings estimates. It also pays a quarterly dividend that yields a healthy 3.48%.
Meta Platforms (META)
Meta Platforms’ (NASDAQ:META) stock is down 9% in the past month and looks ripe for the picking. The company’s shares are currently trading at 24 times future earnings estimates, which is in line with the average among S&P 500-listed companies and historically low for Meta Platforms. The dip also comes as the tech giant further extends its lead in AI, having just released a new version of its Llama model.
Called Llama 3.1, the new technology comes in three different versions, with one being the largest and most advanced AI model to date from Meta Platforms. As was the case with all previous versions of Llama, the newest model is open source, which means it can be accessed by people for free. While analysts criticize Meta for making its AI models available for free, the company insists its approach will lead to future benefits.
META stock is up 33% on the year, even with the current dip in its share price.
Netflix (NFLX)
There’s also Netflix (NASDAQ:NFLX), which remains the most successful and profitable of the streaming companies. The company just reported Q2 financial results that beat Wall Street forecasts on the top and bottom lines due largely to a 34% increase in its advertising-supported memberships. The company announced an EPS of $4.88 versus $4.74 expected among analysts who track the company’s progress.
Revenue amounted to $9.56 billion compared to $9.53 billion, which was the consensus expectation on Wall Street. Sales were up 17% from a year earlier. Total memberships at Netflix rose 16.5% year-over-year to 277.65 million worldwide. That number was better than the 274.4 million expected among analysts. Management said the company is benefitting from advertising revenue on its streaming platform, with the ad-supported tier now accounting for more than 45% of all new sign-ups.
NFLX stock is up 31% year-to-date, though it has come down 7% in the past month despite its strong Q2 print.
On the date of publication, Joel Baglole 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.
On the date of publication, the responsible editor did not have (either directly or indirectly) any positions in the securities mentioned in this article.
