Even after the recent sell-offs in tech stocks, finding safer, value-oriented investments in the industry may be difficult. Many technology stocks continue to trade at very growth-dependent valuations, which increases the danger of a market-wide or tech-specific meltdown. However, there are still excellent technology businesses trading at affordable valuations that have what it takes to deliver solid returns and assist you in thriving in the face of turbulence. Read on to find out why these Motley Fool authors chose AT&T (NYSE:T), Applied Materials (NASDAQ:AMAT), and Facebook (NASDAQ:FB) as bargain companies that could help you diversify your portfolio and offer strong long-term returns.
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A strong dividend and underappreciated growth prospects
AT&T’s Keith Noonan: AT&T, the telecommunications and entertainment behemoth, has its flaws, but the stock is already reasonably priced. If the stock is dragged lower in a market decline, building a stake in the company could be a smart decision. Shares are pricing at less than 9.5 times forecast earnings this year, with a 7% dividend yield, and the company’s growth potential is stronger than current business success might suggest.
The $67 billion purchase of DIRECTV by AT&T in 2015 has been an albatross around the company’s neck nearly since the beginning. Consumers were already abandoning cable and satellite television bundles in favor of streaming platforms like Netflix, and AT&T’s recent decision to spin off and divest a 30% stake in DIRECTV in a deal valued at roughly $16 billion demonstrates that the merger didn’t work out as planned.
The good news is that AT&T continues to dominate the mobile phone service and entertainment content markets. Mobile connectivity has never been more crucial, and as 5G paves the path for new capabilities, it will only grow more integrated with devices and services. Furthermore, the telecom industry is well positioned to benefit from the deployment of next-generation network technology. The company’s HBO Max streaming service appears to be gaining traction, and AT&T’s Warner division has a strong collection of franchises and production studios to help drive long-term subscription growth.
Although AT&T may not be fully immune to a market downturn, a combination of corporate fundamentals, reasonable valuation criteria, and a strong returned-income component could help the stock weather the storm. AT&T has one of the greatest dividend profiles you’ll find for a generally stable firm working in industries with potential for long-term growth, and shares remain reasonably priced.
With Applied Materials, you can profit from the chipocalypse.
(Applied Materials) Jamal Carnette: The long-anticipated “chipocalypse” has arrived! The United States is currently experiencing a substantial chip shortage, which has led major manufacturers such as GM and Ford to postpone vehicle manufacturing.
Factory fires, pandemic-related delays, and even geopolitics and tariffs are all contributing to the present chip scarcity. However, there is a simple solution: increase chip production. This is where Applied Materials comes in. The company is not a chipmaker; rather, it provides semiconductor companies with the crucial equipment they require to build their products.
The stock of Applied Materials has soared by 180 percent in the last year alone. The most recent surge was fueled by a good first quarter, in which the company increased sales and free cash flow by 24 percent and 47 percent, respectively, over the same period last year. Despite the rally, shares are still cheaper than the broader market, trading at 19.5 times forecast earnings vs 22.3 times for the S&P 500.
Chipmakers may overproduce (as they did in 2018) and then curtail production and capital spending in future years, putting Applied Materials at risk. However, Applied Materials’ future appears bright, both in the short term due to growing car industry demand and in the long run due to new technologies such as artificial intelligence, which necessitate a major growth in chip manufacture.
Joe Tenebruso (Facebook), the social media king: Buying shares of exceptional companies while they are briefly trading at a discount is one of the best methods to make money in the stock market. We now have one such chance with Facebook, which is quite exciting.
Facebook’s stock is now trading at a below-market price-to-earnings (P/E) ratio, owing in part to requests for tighter regulation and criticism from some who believe the social media giant hasn’t done enough to prevent the spread of misinformation and hate speech on its platform. Its stock is currently trading at a discount to its trailing earnings of less than 30 times. Meanwhile, the market trades at about 45 times earnings, as measured by the S&P 500.
You’re accurate if you believe that the performance of Facebook’s stock will be influenced by its future profits rather than what it has done in the past. The data also show that the social media behemoth’s stock is a steal. Based on Wall Street profit expectations for 2022, Facebook is selling at a forward P/E ratio of 21.5, despite the fact that its EPS is expected to expand by 21.5 percent annually over the next five years. This puts its price-to-earnings-to-growth (PEG) ratio at one, which is a bargain for a company of Facebook’s caliber.
Even better, Facebook is striving to solve its opponents’ concerns. It’s spending a lot of money to ensure that its consumers’ safety and privacy are protected. Furthermore, while Facebook’s competitive dominance is still a hot topic among lawmakers, regulators are unlikely to require the company’s social media assets to be split up. As more investors learn that these concerns are unfounded, Facebook’s stock price might skyrocket.
This post is the author’s own view, which may differ from a Motley Fool premium advice service’s “official” recommendation position. We’re a mishmash! Questioning an investing theory, even our own, encourages us to think critically about investing and make decisions that will make us smarter, happier, and wealthier.
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