After a steady pullback in the stock market last year, 2023 has been a confusing time for investors. Stocks have posted gains for the year, with the Nasdaq even up 15% year to date at recent prices, but the economy still seems to be slinking toward a recession, and stocks remain in a bear market. Meanwhile, March’s banking crisis showed how quickly things could unravel.
No one knows for sure where the market is headed next, but investors should be prepared to capitalize on another sell-off if it comes. On that note, here are three stocks worth buying if they go on sale.
1. Microsoft
Microsoft (MSFT) has dominated enterprise software for decades, and it’s been the only name in PC operating software for ages. But these days the company is getting most of its attention for its moves in AI.
The Windows maker has invested a reported $13 billion in OpenAI, the start-up behind the revolutionary chatbot ChatGPT, and Microsoft is fast integrating the generative AI technology across its products. It’s made ChatGPT functionality available through Azure, its cloud infrastructure service, enabling developers and businesses to integrate ChatGPT into their cloud apps.
GitHub developers can now take advantage of ChatGPT tools, and Microsoft is adding the technology to its Office suite. Most importantly, its search engine Bing now offers a ChatGPT assistant, presenting the greatest challenge to Google Search yet.
It’s unclear if Bing is taking market share from Google, but Samsung sent shockwaves through Alphabet‘s organization when it said it was considering making Bing the default search engine on its devices instead of Google.
Beyond the OpenAI partnership, Azure continues to gain market share on Amazon Web Services, and Azure now anchors Microsoft’s biggest segment, Intelligent Cloud, showing how valuable its cloud infrastructure service has become in little more than a decade.
Microsoft’s growth has slowed as the tech sector is in something of a recession, but its diversification gives it a degree of safety that no other big tech company can match.
At recent prices, Microsoft trades at a price-to-earnings ratio of 31, making the stock look expensive, especially for its current growth rate. However, a sell-off could offer investors a great price for this tech veteran and AI disruptor. A decline of 20% or more would make for an appealing buying opportunity.
2. Shopify
Shopify (SHOP) was one of the biggest losers of 2022 — peak-to-trough, the stock fell as much as 85% as valuations crashed in the software sector, and growth rates nearly ground to a halt.
Despite the negativity, Shopify remains the clear leader in e-commerce software. The company enables millions of businesses, from sole proprietorships to Fortune 500 companies, to sell online. While e-commerce growth may have taken a pause, it should return as the difficult comparisons with the pandemic boom ease and the inflationary and recessionary headwinds fade. Over the long term, secular tailwinds like faster delivery, better technology, and added convenience should continue to convert market share from brick-and-mortar stores to e-commerce.
Even in a challenging environment, Shopify continues to deliver solid growth. The company reported 26% revenue growth in the fourth quarter, or 28% in constant-currency terms, and gross merchandise volume nearly reached $200 billion for the year. Shopify has also cut costs, laying off 10% of its staff last year, which should help improve profitability this year.
Even after last year’s sell-off, the stock is still expensive at a price-to-sales ratio of 10. A pullback could set up a great buying opportunity for this long-term sector leader. Given its volatility, the stock could easily slide 30% in a sell-off, offering a great price for long-term investors.
3. Costco Wholesale
Costco Wholesale (COST) is a household name in retail, and for good reason. The company is the leading warehouse retailer, offering bulk goods at a bargain price. If you’re looking for quality products at a low price, you’ll be hard pressed to find a better option than Costco.
That business model has made the company the third-biggest U.S. retailer behind Walmart and Amazon, and it continues to grow through new stores and in e-commerce.
Costco hit a speed bump recently, and comparable sales in March actually fell before adjustments for foreign currency and fuel prices. But it tends to be one of the more recession-proof retailers out there, because a majority of its sales comes from consumer staples like food, and most of its profits actually come from membership fees, which tend to be sticky even in difficult economic times.
Costco just raised its dividend, a sign of its confidence despite the decelerating revenue growth. Investors could also be due for a special dividend, as Costco has a history of rewarding investors every two-and-a-half years or so, and the last special dividend came in December 2020.
Because of its strengths, Costco stock trades at a premium, currently valued at a P/E of 38, which is considerably more expensive than peers like Walmart. But Costco is a great company, and at the right price it would be a great stock. I’d look to take advantage of Costco stock anywhere below $400.
— Jeremy Bowman
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Source: The Motley Fool