For growth investors, technology companies have been a great place to secure investment capital over the past decade. Investors are paying big for solid growth with new innovations. Therefore, focusing on the top technology stocks to buy is a winning strategy for those looking for the best possible returns.
But this year, investors are no longer paying for growth. That’s because tech stocks took a big hit as a result of the Federal Reserve’s aggressive rate hike schedule. Unfortunately, we expect more rate hikes this week, which could further squeeze tech valuations.
That said, despite the macro environment likely to remain volatile, investors seeking long-term capital appreciation may want to start building a new buy list. .
For those of you who don’t want to kick yourself later, here’s a list of the three top tech stocks to buy on the downside.
The world’s largest company by market capitalization apple (Nasdaq:AAPL) really needs no introduction.
This king of consumer discretion has completely dominated the smartphone market for about a decade. Interestingly, Apple offers investors a relatively diverse line of business, with the company’s core product, the iPhone, leading the way. But there are also Macs, Apple Watches, iPods, and a variety of highly profitable accessories (such as Air Pods) that have provided incredible profitability over the years.
Apple’s revenue exploded after the pandemic as a surge of cheap capital flooded it with arbitrary upgrades. Indeed, during times of stress, these purchases may decline. That said, Apple’s profit margins are really good and it’s a company with pricing power. Apple has decided not to raise prices on its flagship iPhone line this year, but it’s clear that consumers are willing to pay for the best technology. So over time, Apple is an inflation-beating tech stock worth watching right now.
As a defensive moat of sorts, Apple is a company with a huge amount of money and a loyal customer base. These factors are no exaggeration to say the least, and should help this company weather the impending turmoil. We have proven our ability to grow. So this is the top stock I’m hooked on right now.
Perhaps the most famous company in worldwide searches is alphabet (Nasdaq:goog). The core foundation of the company’s business is based on digital advertising, which continues to explode over time. In fact, even during the pandemic, companies didn’t really slow down their online advertising spend. So this $1.33 trillion company of his continues to expand in valuations at a time when many have turned bearish.
After all, Alphabet’s strong performance in its core business has led to a recent decline in multiples. This allowed investors to buy his GOOG stock for less than 20 times his tracked earnings. This is about as cheap as any deal I’ve ever seen for this growth stock. A lot of this, again, has to do with low forward-looking growth estimates.
Like other technology companies looking to diversify, Alphabet’s new core growth driver is its cloud business. Over time, this business should offset the disconnect from our core search business.
Another company with a dominant market share is microsoft (Nasdaq:MSFTMore). According to Statista, Windows OS powers over 76% of PCs worldwide, compared to 15.3% for Apple’s Mac OS. This is impressive and one of the main reasons long-term investors keep Microsoft as a leader in software and services.
Like other major tech giants, Microsoft has rallied during the pandemic. One of the reasons is that remote work has become the norm and society’s slow shift in this direction is heating up. While many employees are returning to the office, the demand for cloud services continues to soar. As the leader in this space, with 28% year-over-year growth in this segment alone, Microsoft is an important player to watch in terms of growth.
Indeed, Microsoft’s valuation multiples reflect this high growth trajectory. This is a megacap tech stock (worth $1.82 trillion) trading at 25x earnings. That’s expensive for most companies.
That said, Microsoft’s near 40% operating margin and highly cash-generating core business make future cloud-based growth look more attractive. This is a company that always seems likely to trade at a premium, and today this low valuation is worth a look.
As of the date of publication, Chris MacDonald owns shares of Apple and Amazon. The opinions expressed in this article are those of the author, subject to the InvestorPlace.com Publishing Guidelines.