After a slight market decline, many companies seem to be doing well. Most of the news that caused this decline will be irrelevant in three to five years, so there is no reason to panic.
At the top of my shopping list today are Semiconductor manufacturing in Taiwan (NYSE:TSM), alphabet (NASDAQ:GOOG) (NASDAQ:GOOGL)And Amazon (NASDAQ:AMZN)All three companies have fantastic long-term tailwinds and appear to be strong buys right now.
Taiwan Semiconductor
Taiwan Semi is probably the most critical company in the world. Without its manufacturing capacity, companies like Apple, NVIDIAand almost any other company that relies on high-tech equipment would be out of luck. Its world-class semiconductor manufacturing capabilities allow it to produce cutting-edge chips in the 3nm marketing category.
These specialized production techniques require incredible knowledge and skills if they are to be implemented on a large scale, so it is almost impossible to dethrone TSMC, although there are still serious competitors.
Currently, the stock is about 10% below its 2024 peak, but it’s still worth buying even if investors have missed the true bottom. At 26 times forward earnings, it’s still not expensive for the growth it’s delivering.
In the second quarter, revenue grew 33% in US dollar terms, while a solid forecast was given for the third quarter (revenue growth of 32%). Taiwan Semi is well positioned to benefit from the steady rise of technology in our lives, and if investors have the opportunity to buy the stock on offer, they should take advantage of the opportunity.
alphabet
Even without the sell-off, Alphabet seemed like an excellent buying opportunity. Despite being one of the largest companies in the world, Alphabet doesn’t earn as much as its competitors. The parent company of Google, YouTube and the Android operating system is only valued at 22 times earnings.
Considering that its peers are trading at 30 times forward earnings or more, Alphabet looks like one of the cheapest stocks among the big tech companies. And that cheapness has nothing to do with business performance, because Alphabet has outperformed it by a landslide.
In the second quarter, Alphabet’s revenue grew 14% year over year and operating margin increased three percentage points. Google Cloud in particular had a stellar quarter with revenue up 29%. This is an important division and strong results show that it is still a top choice in cloud computing.
Alphabet is a dominant company that doesn’t command the premium of its competitors, so this is an excellent opportunity to snap up shares at a fantastic price.
Amazon
In the eyes of some investors, Amazon is performing the worst of the three companies. In the second quarter only rose 10% to $148 billion, but investors wanted more. The company also issued guidance for 8% to 11% revenue growth for the third quarter, which investors also didn’t like.
However, that’s the wrong number. Amazon won’t offer lightning-fast growth simply because of its sheer size. Instead, I’d like to point investors to how profitable Amazon is becoming. Amazon provides guidance for operating income to be between $11.5 billion and $15 billion next quarter, compared to $11.2 billion in the same period last year.
Unless operating profit is at the low end of management’s guidance, this will represent excellent earnings growth, which is critical to lowering Amazon’s valuation.
36 times forward earnings isn’t necessarily cheap, but getting Amazon to peak profitability in a year isn’t a realistic expectation either. Amazon’s long-term goal is to grow its earnings much faster than revenue as the company works to increase profitability across the board.
This is my main investment thesis for Amazon, and it will take years to pay off. If investors focus on revenue growth and sell the stock because of it, that’s a cheaper purchase price for me.
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Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. John Mackey, former CEO of Whole Foods Market, a subsidiary of Amazon, is a member of The Motley Fool’s board of directors. Keithen Drury has positions at Alphabet, Amazon, and Taiwan Semiconductor Manufacturing. The Motley Fool has positions in and recommends Alphabet, Amazon, Apple, Nvidia, and Taiwan Semiconductor Manufacturing. The Motley Fool has a disclosure policy.
Stock Market Sell-Off: 3 Stocks to Buy Now Before They Go Up was originally published by The Motley Fool
