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Stocks to buy now: Alphabet, Facebook and 4 more great deals

Stocks to buy now: Alphabet, Facebook and 4 more great deals

When the stock market is pounded, bargains abound, or so it seems. But in a bear market, the key to investing success is separating thoughtlessly discarded junk from overpriced junk.

With about two-thirds of stocks in the


S&P500

down more than 20% from their all-time highs and the index itself down 15%, many stocks are selling. Investors have their picks in almost every sector, from technology and communications services to consumer staples and discretionary.

But the stock market is not like a clothing store, where bargains are gleefully snatched up, even if not all of them will look so good when you get home. Instead, when stocks fall, many investors struggle to pull the trigger, fearful of picking a misfire that only adds to the pain already plaguing their portfolios. But there are opportunities amidst the rubble.

“The chaos has created a handful of buying opportunities,” says Andy Kapyrin, co-chief investment officer at RegentAtlantic, a New Jersey-based wealth management firm. “It’s worth wading through the chaos.”

Bear markets always seem to expose stocks with high valuations, poor accounting and low earnings, among other problems. And it’s never enough to scan the market for stocks trading at the bottom of their valuation range – a stock’s price-to-earnings ratio alone is not a sign that it is really good. market.

“The first step is to ask yourself if the stock is as cheap as it looks,” says Chris Senyek, chief investment strategist at Wolfe Research. The second “is to examine the sustainability of gains”.

It is not easy. Jim Rocchio, co-founder of Kailash Concepts Research (KCR), says his team analyzes factors such as return on equity and the differences between reported, actual and cash earnings, along with other metrics. The goal is to find high quality companies trading at reasonable valuations.

Here are six actions that fit the bill.

Alphabet

Recent Price Change since the beginning of the year next 12 months. East. PES next 12 months. East. PER
$2,155.85 -25.60% $115.76 18.6

Source: FactSet

ParentGoogle

Alphabet

(ticker: GOOGL) fell about 26% in 2022, 11 percentage points more than the S&P 500’s 15% drop. But that drop did wonders for the stock’s valuation, which fell at 18.6x forward 12-month earnings, compared to more than 25x at the start of the year. Still, not much has changed for Alphabet, and the future still looks bright. Sales and profits are expected to increase 15% and 19% in 2023 compared to 2022, respectively. Google is still dominant in Internet search and ad sales, and it’s still a cash-flow machine. Alphabet generated $67 billion in free cash flow in 2021 and is expected to produce approximately $339 billion between 2023 and 2025. As they say, follow the money.

Search Lam

Recent Price Change since the beginning of the year next 12 months. East. PES next 12 months. East. PER
$509.21 -29.20% $36.28 14

Source: FactSet

You would think that the current chip shortage would be good for

Search Lam

(LRCX), which manufactures the equipment that produces the semiconductor chips. Instead, Lam’s stock has fallen 29% this year as it suffered from its own supply constraints, not to mention rising costs. Yet Lam stock is trading at just 14 times its 12-month forward earnings. That’s a reduction from its own five-year average of 14.8 times and that of the S&P 500 of 17.4 times. Despite the discount, sales and profits are expected to grow 7% and 10%, respectively, in calendar year 2023, and free cash flow is expected to reach $5.1 billion. Moreover, Senyek’s work at Wolfe Research and KCR’s analysis both show that his accounting is strong. Investors get their money’s worth.

Metaplatforms

Recent Price Change since the beginning of the year next 12 months. East. PES next 12 months. East. PER
$191.63 -43.00% $12.22 15.7

Source: FactSet

There’s a lot to dislike about parent Facebook

Metaplatforms

(FB), whose stock has fallen 43% this year. The social media company’s sales were well below Wall Street expectations due to changes to

Apple

(AAPL) and competition from TikTok. Meta will spend a ton of money building the metaverse and living up to its name. Meta sales are expected to increase approximately 16% in 2023 and are expected to generate approximately $31 billion in free cash flow. Meta stock now trades at just 15.7 times its 12-month forward earnings, a discount to the S&P 500. “Facebook at a discount to the market?” says Kapyrin of RegentAtlantic. “It’s a value stock by most people’s definition.”

Micron Technology

Recent Price Change since the beginning of the year next 12 months. East. PES next 12 months. East. PER
$70.60 -24.20% $11.46 6.2

Source: FactSet

Micron Technology

(MU), which makes memory chips for electronic devices, is almost always cheap. But after falling 24% in 2022, the stock is really cheap. Micron trades at just 6.2 times earnings, below its five-year average of 8.9 times. This reflects the cyclical nature of Micron (and memory chips), although the company now appears to be in a bull cycle, with sales and earnings expected to rise 16% and 24%, respectively, over the year. calendar 2023. Additionally, the business is a very consistent generator of free cash flow – it had $3.4 billion in 2021 and is expected to generate an additional $8.8 billion and $10.6 billion over the next few years. calendar years 2023 and 2024, respectively.

netflix

Recent Price Change since the beginning of the year next 12 months. East. PES next 12 months. East. PER
$191.40 -68.20% $10.72 17.9

Source: FactSet

netflix
it is

(NFLX) The Covid-19 bubble burst and the stock deflated in a hurry. Shares are down 68% in 2022, about half of what they were at the start of the pandemic, in March 2020. Competition from video streaming has grown and dampened Netflix subscriber growth; the company recently experienced its first drop in subscribers since 2011. Now, however, Netflix looks like it could be a worth investing situation. The stock is trading at 17.9 times its 12-month forward earnings, below its five-year average of 67.7 times and slightly ahead of the S&P 500. That’s inexpensive “for a company with higher profit margins, a better future and less debt” than the average stock, says Kapyrin of RegentAtlantic.

Teradyne

Shares of

Teradyne

(TER), which makes test equipment for the semiconductor industry as well as robots for factory automation, is down about 36% year-to-date, more than half of that fall coming a day after the company gave a disappointing sales forecast. The advice, however, was not due to a lack of demand, but to a delay in technological development. Teradyne still expects to earn around $8 per share in 2024, and the stock currently trades at 20 times forward 12-month earnings. Additionally, estimates of adjusted earnings and estimates based on generally accepted accounting principles, or GAAP, are low. Teradyne has some of the cleanest financials in the S&P 500, according to KCR.

Write to Al Root at [email protected]