Amid the massive plunge in tech stocks, investor sentiment may have hit its lowest level since the financial crisis. The Nasdaq Compound fell more than 25%, and many top growth tech stocks fell more than 75% during this downturn.
However, such bear markets can actually benefit to longer-term investors, as they can now buy stocks at lower prices. This includes technology stocks such as Adobe (ADBE -1.71%), Focus on video communications (ZM -3.88%)and Alphabet (GOOGL -5.63%) (GOOG -5.81%)which now offer more attractive opportunities and potentially greater payouts.
I regret not having bought Adobe ten years ago. I don’t make the same mistake twice.
Jake Lerch (Adobe): Everyone loves a bargain. Whether it’s a few dollars or thousands of dollars, we all love the feeling of saving money. This is especially true for investing. I’m always on the lookout for stocks on sale. I will keep an eye on certain companies for months or even years, waiting for the right moment to pull the trigger.
Finally, last month, I had my chance with Adobe. It’s one of those companies that I wish I had bought ten years ago. If I had invested $10,000 in 2012, I would be $118,000 richer today. Unfortunatelyall i can do now is live and learn — and buy Adobe stock.
What I really like about Adobe is that it sits at the center of the digital economy. Businesses large and small rely on enterprise tools for content creation, marketing, and sales.
Adobe operates in three segments:
- Digital media
- Digital experience
- Publishing and advertising
Around the world, content creators, marketers, educators, and enthusiasts use Adobe’s diverse tools and platforms to produce the digital media we consume every day.
Despite its importance to the global digital economy, Adobe’s stock has fallen on hard times this year. It is down 29% since the start of the year and 42% from its record level. The most recent blow came last month, when Adobe reported better-than-expected results but lowered its full-year guidance due to – wait for it – negative currency effects from the strength of the US dollar.
I’m not concerned about the strength of the dollar when it comes to Adobe. The fundamentals of the company remain solid. Its operating margin was 36%; it benefits from a return on equity of 35%. Additionally, its free cash flow is at an all-time high of $6.9 billion.
Indeed, with the company trading at a near-record price-to-earnings (P/E) ratio of 39.3, I’m hoping Adobe returns some of its recent gains, so I can get an even better deal.
From pandemic darling to thrown away, this stock is a bargain
Justin Pope (Zoom Video Communications): COVID-19 turned the stock market into a roller coaster, where stocks plunged and then hit high highs a few months later. Zoom was a poster child for pandemic stocks; lockdowns pushed people to communicate digitally, and Zoom’s growth and share price exploded.
You can see below that what went up has come down. Now, with Zoom only seeing 12% year-over-year revenue growth for the quarter ending April 30, 2022, is the goose done?
There’s plenty of evidence that Zoom still has plenty in the tank. First, don’t dwell too much on Zoom’s slow revenue growth. These are year-over-year calculations, and the company grew 191% in the same quarter a year earlier. It is unlikely that a company will see its growth soar and continue with the same momentum a year later.
Zoom still managed to grow above that stellar period instead of returning revenue. This could be a sign that Zoom’s success was a result of real market demand driving long-term growth in the short term, while Zoom was a flukey fad that dies as soon as the pandemic passes.
And Zoom is very profitable, unlike many growth stocks that have suffered haircuts of 50% or more in this bear market. The company is accumulating free cash flow and net income, bolstering a balance sheet that carries $5.7 billion in cash, or 18% of its market capitalization, versus zero debt.
I wouldn’t be surprised to see growth resume once Zoom tops those terrific comparable growth numbers, but it doesn’t have to do much to move forward. The stock now trades at a price-to-earnings (P/E) ratio of just 26, which seems quite reasonable for a growth stock with years of potential growth ahead and the ability to increase its share buybacks. if you wish it.
Add it all up and Zoom appears to be a fundamentally sound company trading at a premium today. Investors might view this bear market as an opportunity to buy stocks.
Investment opportunity from Google in this search company
will heal (Alphabet): Now that Google’s parent company Alphabet has completed its long-awaited 20-for-1 stock split, it might be time to consider the search engine and advertising giant. Although it does not pay a dividend, Alphabet offers almost everything that value-conscious investors are looking for in a stock.
First of all, it’s his job. Its dominant search engine and popular YouTube platform paved the way for it to become an advertising giant and a cash cow. He has used these resources to enhance his capabilities in AI, machine learning, and many other applications that involve him in several subsectors of the technology industry.
However, if the latest earnings reports show any indications, it looks like Google Cloud will become its next big cash cow. In the first quarter of 2022, Google Cloud reported revenue growth of 44% compared to 23% for Alphabet as a whole.
Alphabet also holds about $140 billion in cash, a factor that gives it an option bolstered by one of the strongest balance sheets in the industry. Plus, since it generated $15 billion in free cash flow in the first quarter alone, that cash hoard could grow even further.
Certainly, Alphabet is not immune to the bear market. Since November, its stock has fallen about 25%, a performance that roughly matches that of S&P500.
But given its growing earnings, it may have become undervalued. Alphabet is selling at a P/E ratio of 21, its lowest valuation since 2014. It is also trading at a significantly lower multiple than its cloud rivals. Amazon and Microsoftwhich sell for 59 times and 27 times earnings respectively.
While some investors may now feel down about tech stocks, Alphabet has given them little reason to doubt its top position in the tech industry or its future. At 21 times earnings, buying this stock will likely boost investor returns — as well as investor sentiment — over time.