Technology stocks have been one of the worst-hit sectors in the stock market with the tech-heavy benchmark, Nasdaq 100, officially in bear market territory.
While this has made investors cautious about dipping their toes into tech stocks, the selloff is actually an opportunity for investors to pick up great companies (with solid businesses) at low prices.
Long-term investors should look beyond near-term market volatility and share prices to determine their investment strategy.
I think investors should look at the quality of the company they’re buying by looking at the management track record, business models of the company, its competitive edge, growth potential and balance sheet of the company.
Taking all that into account, here are three tech companies that are outstanding and deserve investors’ attention as potential buys for their portfolios.
1. Microsoft
New investors who have just bought into Microsoft Corporation (NASDAQ: MSFT) are probably worried about the company’s prospects as its share price has plummeted by more than 20% year-to-date.
However, long-term investors should take note that the software giant has a strong track record with a 954.3% total return over the last decade.
This translates into a compound annual growth rate (CAGR) of 98.6% over the last 10 years.
Looking at Microsoft’s businesses and earnings, it’s clear that its cloud business, primarily Azure, will continue to drive growth going forward.
The Azure cloud business stood out, growing by 46% on a year-on-year basis during its latest quarterly earnings.
On top of that, the company also saw strong and consistent growth in all three of its core businesses: Productivity and Business Processes, Intelligent Cloud and More Personal Computing.
It is also worth noting that Microsoft is gaining momentum in the cybersecurity space and is building its position in the gaming ecosystem with its Xbox Game Pass.
My colleague, Tim, has written an article on whether Microsoft is a buy after its latest earnings in April.
2. Apple
Apple Inc (NASDAQ: AAPL) was not spared from the sharp selloff in tech stocks. In fact, the iPhone maker lost its crown as the world’s most valuable company last week.
Apple faced some short-term challenges, in terms of the supply chain disruption, that will constrain the availability of its products, such as the new iPad.
During the earnings briefing, Apple guided that the supply chain shortages would cost the company an estimated revenue of US$6 billion in the coming quarter.
The supply chain issue was mainly due to the COVID-19 breakouts in China that resulted in lockdowns.
These suspensions will affect Apple’s near-term revenue as it relies heavily on its hardware sales.
However, Apple has created a strong ecosystem that has boosted its services revenue.
The tech giant also has a huge cash balance that allows the company to reward shareholders via share repurchases and dividends.
You may read more about the article that I wrote back in early May on three reasons why investors should buy Apple after its latest earnings.
3. Meta Platforms
Facebook parent company, Meta Platforms Inc (NASDAQ: FB) is another tech company that I think is underappreciated.
Back in mid-March, I have wrote about the opportunity to buy into Meta amid the selling pressure on its shares.
At that time the company was trading at US$187.61. It has since rebounded by 3.2% to US$193.54 per share. The share price, however, has remained volatile.
In fact, year-to-date, Meta’s total return is negative 42.5%.
While there is lots of negative sentiment surrounding the company in relation to issues with privacy and its expansion into the Metaverse, it still has very strong social media platforms that are not going away any time soon.
With a massive user base of 1.9 billion daily active users (DAUs) of Facebook, as well as the substantial number of users of both WhatsApp and Instagram, Meta has over 3.6 billion users.
The company is also improving in terms of its short video content known as Instagram Reels, the TikTok clone, which is gaining momentum.
Add in the potential of the Metaverse as well as the track record of its founder, Mark Zuckerberg, and Meta should be a favourite choice for long-term investors.
Focus on business fundamentals
The selloff in the tech stock is mainly due to concern over the rising interest rate environment. However, these companies’ underlying fundamentals remain intact and would be a good opportunity for long-term investors to accumulate at a lower price.
Disclaimer: ProsperUs Investment Coach Billy Toh doesn’t own shares of any companies mentioned.
