The broader stock market has taken a hit over the past few months, and tech stocks have taken a beating along with it. Investors are likely worried about increasing talk about a possible economic slowdown or recession in the U.S., as well as uncertainty about a trade war between America and China.
But despite these concerns, there are still tech stocks that look like great buys right now. TTM Technologies (NASDAQ:TTMI), NVIDIA Corporation (NASDAQ:NVDA), and Amazon (NASDAQ:AMZN) are benefiting from their respective businesses and setting themselves up to grow for years to come.
This market leader is cheap for all the wrong reasons
Anders Bylund (TTM Technologies): Printed circuit boards aren’t going out of style anytime soon. Yet, the market acts as if this crucial part of all the electronics around us is going extinct in a hurry. It’s high time to snap up shares of this sector-leading — and very profitable — circuit-board maker.
Shares of TTM Technologies fell 45% lower in the second half of 2018. This plunge was not connected to disappointing business performance as the company knocked every earnings report out of the park. This was all about flagging investor confidence in TTM’s target markets, from smartphones and networking equipment to industrial machinery and computerized cars.
That market reaction might make sense for weaker hands in each niche of the markets, but TTM Technologies is a proven leader. In a commoditized sector where most of its direct rivals are getting by on net margins of 1% or below, TTM’s trailing net profits work out to 6% of the incoming revenue. Similar margin advantages hold true no matter what financial metric you’d like to explore, from gross and operating margins to returns on assets or on equity. This company stands head and shoulders above the rest and is perfectly equipped for weathering a few economic storms without losing any ground in the long run. If anything, TTM could very well snap up the remains of failing competitors through bankruptcy deals or opportunistic buyouts.
The stock traded for more than 20 times trailing earnings as recently as last summer, but it can be had for a measly 7 times earnings today. Don’t call it a turnaround when TTM’s stock starts to rise again — the company never really suffered a downturn in the first place.
Grab this beaten-down chip leader before it recovers
Steve Symington (NVIDIA): Shares of NVIDIA have plunged more than 50% since late September for a couple of reasons. First, high-flying tech stocks were hit particularly hard as the broader market pulled back in recent weeks. And second, the graphics-chip specialist is being punished after posting mixed third-quarter results last month. That’s not to say it was all bad news for NVIDIA; quarterly earnings actually beat expectations, but revenue fell short as cryptocurrency-related GPU purchases waned, leaving the industry with an inventory glut that will take some time to work through. Sure enough, revenue in the fourth quarter is expected to fall around 7% year over year, to $2.7 billion, marking a harsh reversal from the incredible growth that had repeatedly stunned Wall Street in prior quarters.
In the meantime, the market seems to be forgetting that this massively profitable company is working hard to diversify its revenue streams. If its industry-leading position in the gaming market isn’t enough, NVIDIA simultaneously enjoyed record sales from its datacenter, automotive, and professional visualization segments last quarter.
Once NVIDIA manages to clear its excess inventory and year-over-year growth resumes, I think the market will realize its long-term story remains firmly intact — and the stock should respond in kind.
There’s still time to ride Amazon’s wave
Chris Neiger (Amazon): With Amazon’s share price up 317% over the past five years, it may seem like the time to buy Amazon stock has long past. But overlooking this tech stock now would be a huge mistake. That’s because Amazon’s tech opportunities are still very much in their early stages.
Amazon’s biggest technology bet has, of course, been the build-out of its cloud-computing platform, Amazon Web Services (AWS). AWS currently has 34% of the public cloud-computing market and easily outpaces its next rival, Microsoft, which holds 14% of the market. Market share aside, Amazon brought in $6.68 billion in AWS sales in the most recent quarter, with $2.1 billion in operating income. That’s impressive enough, and it gets even more exciting when you consider that the public cloud-computing market is expected to grow from $186 billion in 2018 to $302 billion in 2021.
Aside from its cloud-computing services, Amazon has emerged as an artificial intelligence leader as well. The company implements varying levels of machine learning into its e-commerce platform to make suggestions for products and advertisements, and it also uses the tech in its Echo devices as well. All of this allows the company to operate its online retail business more precisely, advertise more efficiently, and make it easy for Echo users to make more purchases.
Investors looking for a tech stock that still has lots of room to grow sales and earnings from its growing AWS business and artificial intelligence should look to Amazon. The company may not be a traditional tech stock, but investors should look closer at how Amazon is using technology to expand into new markets and improve the ones it’s already dominating.
John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Teresa Kersten, an employee of LinkedIn, a Microsoft subsidiary, is a member of The Motley Fool’s board of directors. Anders Bylund owns shares of Amazon. Chris Neiger has no position in any of the stocks mentioned. Steve Symington owns shares of Nvidia. The Motley Fool owns shares of and recommends Amazon and Nvidia. The Motley Fool owns shares of Microsoft. The Motley Fool has a disclosure policy.