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The Nasdaq Composite index’s level has fallen 28% over the last year and trades down 32% from its high. Even some of the world’s strongest companies haven’t been immune to bearish trends shaping the broader market, but the portfolio-crushing downturn is actually creating opportunities for long-term investors.
For those willing it weather challenges in the near term, today’s tough market conditions have actually made it possible to build positions in incredibly strong businesses at prices that leave room for impressive returns. With that in mind, read on to see why two Motley Fool contributors identified these two industry-leading businesses as great investment candidates that can be purchased at attractive prices.
Image source: Getty Images.
Parkev Tatevosian: Google parent Alphabet (GOOG 0.97%) (GOOGL 1.09%) is down nearly 39% off its highs due mainly to the broader market declines. Additionally, several macroeconomic factors, including rising inflation, the war in Ukraine, and central banks tightening monetary policies are causing marketers to reduce their spending on Alphabet’s platforms.
The short-term nature of these headwinds and the company’s excellent revenue and profit growth history lead me to believe the stock-price decline is a buying opportunity for long-term investors.
Indeed, Alphabet grew revenue from $46 billion to $258 billion between 2012 and 2021. The company is home to Google and YouTube, two of the more dominant consumer platforms today. YouTube has 2.5 billion monthly active users that spend meaningful time viewing content. Google boasts an 84% market share of search engines worldwide.
That strong connection to consumers has allowed Alphabet to charge premium prices to marketers that are looking to influence the purchasing decisions of those users. Between 2012 and 2021, Alphabet’s operating income exploded from $14 billion to $79 billion. And there is little reason to feel that the advertising industry will disappear; businesses will forever want to attract customers to purchase their products and services.
GOOG PE Ratio data by YCharts.
The 39% price decline mentioned earlier has Alphabet trading at a price-to-earnings ratio of 18.15, near the lowest PE figure in its recent history. Long-term investors can feel good about adding shares of Alphabet to their portfolios at these valuations.
Keith Noonan: Strong business performance has helped Microsoft (MSFT 0.30%) hold up better than most tech stocks in the current bear market, but its share price is still down roughly 31% from its peak. With the company looking stronger than ever in many respects, long-term investors can feel relatively confident that buying the stock today will deliver strong returns over time.
Microsoft’s transition to a cloud- and subscription-focused business yielded soaring sales and profits and improved its competitive position. While the company’s productivity software should maintain its solid growth and the personal computing segment’s performance will likely vacillate with macroeconomic conditions, it’s the company’s Azure cloud-infrastructure services business that has emerged as the software giant’s most impressive growth driver.
Even as economic pressures have mounted over the last year, Microsoft’s Azure cloud infrastructure service has continued to grow at an encouraging rate and deliver very strong margins. Revenue for Azure and other cloud services rose 35% year over year in the company’s first quarter, which concluded at the end of last September. This performance helped push revenue for Microsoft’s intelligent cloud segment up 20% compared to the prior-year period and overall revenue up 11% to reach $50.1 billion.
It’s good news that the company’s fastest-growing sales segment has come to account for a substantial portion of overall sales and still has plenty of room for long-term expansion.
Even if macroeconomic pressures continue to shape the broader operating backdrop in the near term, Microsoft remains well positioned for long-term success. The company also has a net cash position of roughly $30 billion, pays a dividend yielding roughly 1.1%, and has increased its payout 196% over the last decade.
For investors looking to build exposure to top tech companies capable of going the distance, Microsoft stock stands out as a terrific pick.
Alphabet and Microsoft both have strong competitive advantages and growth opportunities that make them fantastic long-term investments. While neither company is likely to be completely immune to macroeconomic headwinds and other sources of volatility, each tech giant has what it needs to persevere through challenges and emerge ready to seize fresh opportunities and continue delivering strong returns for shareholders.
Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. Keith Noonan has no position in any of the stocks mentioned. Parkev Tatevosian, CFA has positions in Alphabet. The Motley Fool has positions in and recommends Alphabet and Microsoft. The Motley Fool has a disclosure policy.
*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.
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