Times of market turmoil can be some of the best times to pick up high-quality stocks for the long-term. That's in retrospect, of course! Often, the best time to pick stocks is when one feels the most uneasy about buying them.
But don't let near-term market fears get in the way of your long-term investing plan. Here are three sold and growing high-quality tech names to pick up today.
Stocks that will benefit a lot from artificial intelligence have pulled back recently after their multi-month run. But artificial intelligence investment doesn't seem to be slowing down one bit. In fact, if anything, the problems appear to be that of supply constraints, not demand.
One of the best "picks and shovels" AI plays as well as one of the most reasonably priced is Applied Materials(NASDAQ: AMAT) at under 18 times earnings, with the most diverse portfolio of chipmaking equipment in the semiconductor capital equipment industry.
Applied's portfolio spans etch and deposition, metrology, and advanced packaging equipment, across leading-edge and lagging-edge specialty chips, along with both DRAM and NAND memory. So no matter which part of the semiconductor value chain is strong or weak at any particular time, Applied should have fairly resilient results that balance out.
We've seen that this year, as parts of the chip industry were in a terrible downturn, but Applied's equipment sales have barely fallen. Meanwhile, Applied's services revenue, which make up 22.8% of sales and is largely tied to the installed base, adds another layer of stability. Services actually managed a small gain last quarter.
Artificial intelligence chips will require more capital intensity to keep up the power-performance requirements for these new applications. These include new features such as gate-all-around transistors, backside power, and advanced "chiplet" packaging, all of which should play toward Applied's strengths.
Applied's high-margin, high return-on-capital business also allows it to invest in futuristic technology while also rewarding shareholders. Earlier this year, Applied hiked its dividend by 23%, with the stated goal of doubling that payout over the next few years. And this is all while investing in a futuristic new $4 billion EPIC research and development center for industry and academic collaboration.
A company that invests for the future while also returning cash to shareholders is a recipe for long-term gains. That's why Applied looks like a solid buy after this summer dip.
Sea Limited(NYSE: SE) stock has had a rough go of it this year, with its most recent leg down coming after its August earnings report. But the stock seems quite cheap now at just 2 times sales. That's not bad for Southeast Asia's leading e-commerce platform, along with a high-growth fintech wing and a gaming platform that owns the global hit Free Fire. Moreover, Sea proved that it can be profitable if it wants, with cash flow growing each of the past two quarters.
Revenue growth was "only" 5% last quarter, sending the stock into a tailspin, but it's important to tease out each individual segment. E-commerce was up 28% and the higher-margin marketplace e-commerce revenue rose 38%. Digital financial services grew 53%.
The problem was the digital entertainment games division, which was down 41.2%, as the post-pandemic period and maturing of the Free Fire user base took hold. However, the digital entertainment division saw an 11% quarter-over-quarter increase in users. Although bookings were down slightly, Free Fire is a free-to-play game, so it's a good possibility that bookings turn around eventually as users return.
In fact, Sea has received permission to reenter the Indian market, after Free Fire was banned in February 2022, as long as it meets new data security conditions. Sea is working on that, and should see some user growth whenever it relaunches Free Fire in the country.
Finally, Indonesia, the largest Southeast Asian economy, just passed restrictions on combining social media with e-commerce. That has stopped Tik Tok shop in its tracks, which had been taking market share and was thought to pose a competitive threat to Sea. The new regulations should benefit Sea's core e-commerce platform, Shopee, and relieve some pressure to growth and margins.
As headwinds begin to abate, Sea's stock should find its footing and turn around.
Even though interest rates are much higher, which tends to limit the valuations for unprofitable growth stocks, fintech platform Marqeta(NASDAQ: MQ) has a huge amount of cash on its balance sheet. In fact, Marqeta's net cash is $1.4 billion today, around 50% of its $2.8 billion market cap.
Moreover, Marqeta is in the midst of a turnaround, as new CEO Simon Khalaf just came onto the job early this year. Since then, Marqeta has accelerated its bookings, with 150% growth over the past three quarters relative to the prior year. Moreover, those bookings typically take 12-18 months for the program to ramp and those bookings to translate into revenue and profits, so the year ahead should be very strong for Marqeta. Khalaf has also cut costs at the same time, while renegotiating the company's all-important contract with Block, a huge customer, for another four years.
So things are looking better for Marqeta, whose platform allows companies to tailor card programs according to individual and flexible parameters. Its platform allows card issuers greater flexibility to tailor characteristics of a card, allowing finance and non-finance companies alike to issue their own flexible card programs, enabling some to do so for the first time.
That's likely a huge market opportunity, and why Marqeta looks like a potential high-upside bet. And with so much cash on the balance sheet, it's relatively low-risk, too.
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Billy Duberstein has positions in Applied Materials, Marqeta, and Sea Limited and has the following options: short January 2024 $30 puts on Sea Limited, short January 2024 $50 puts on Sea Limited, and short January 2025 $3 puts on Marqeta. His clients may own shares of the companies mentioned. The Motley Fool has positions in and recommends Applied Materials, Block, and Sea Limited. The Motley Fool recommends Marqeta. The Motley Fool has a disclosure policy.