In times of market volatility and uncertainty, it is natural for investors to feel concerned about the fluctuations and corrections occurring within the stock market. However, there is a way to actually benefit from the current situation, and that is to take advantage of the lower prices of high-quality stocks that are being discounted due to the market correction.
The recent scenario is a perfect example in which the “buying the dip” strategy can be applied. This strategy consists of purchasing quality stocks when their prices are temporarily low, with the expectation that they will rebound and generate significant profits once market conditions stabilize.
Two stocks that can be appealing during the current economic environment are technological stocks, Alphabet (Google’s parent company) and Meta Platforms (formerly Facebook). These two companies are part of the Magnificent Seven stocks, and although their performances have not been so positive lately, they possess solid financial foundations, innovative business models, and strong growth prospects. These factors position them as attractive long-term investment opportunities.
Alphabet (GOOGL), which has experienced a decline of over 14% from the peak it reached on July 10 ($193.3), still remains a stalwart in the technology industry. With core business segments like Google Search and Google Cloud driving consistent growth, Alphabet’s focus on AI technology and other emerging sectors underscores its potential for sustained success in the future. In fact, experts believe that Google will continue expanding its market share in cloud services and will likely achieve a revenue growth rate of more than 20% per year until 2028. Additionally, Alphabet has a strong financial foundation with $111 billion in cash and cash equivalents, and only $13 billion in total debt as of the end of 2023. They also have a $4 billion credit line that is currently unused, and since the company’s cash reserves are mostly held outside the U.S., Alphabet has more flexibility in how it allocates its capital. This allows the tech giant to potentially invest in opportunities globally and navigate tax implications more efficiently.
In regards to Meta Platforms (META), its stock value has also experienced a significant drop from the peak it reached on July 8 ($542.41). The tech giant fell by almost 11%, as of August 5. Nevertheless, despite the drop, Meta continues to showcase promising growth avenues through initiatives like the metaverse and enhanced ad monetization strategies. In addition, it is important to highlight that Meta remains a significant player in the lives of billions of people, and this is mainly because its popular platforms like Facebook, Instagram, and WhatsApp all facilitate social interactions and transactions. Thus, although Meta’s current trend is not very positive, the fact that the apps it offers are essential to many, it is likely that Meta will continue having a strong presence and potential growth in the future.
Besides, when compared to the other five tech giants (Nvidia, Amazon, Microsoft, Apple and Tesla), Alphabet and Meta are relatively cheaper as their price-to-earnings (P/E) ratios are 23.06 and 24.24 respectively, as of August 5.
When we talk about the P/E ratio, we refer to a valuation metric that compares a company’s current share price to its per-share earnings. It is calculated by dividing the market price of a company’s stock by its earnings per share (EPS). A lower P/E ratio typically indicates that a stock may be undervalued, while a higher P/E ratio may suggest that the stock is overvalued. In the case of Alphabet and Meta Platforms, their relatively lower P/E ratios compared to other tech giants may make them more appealing as investors can still get exposure to the technology sector but at a relatively lower price.
Ultimately, taking into account that the last trading sessions have pushed down the value of many top-notch companies like the ones mentioned above, the current economic environment may present a good opportunity to dive into the market and scoop up some bargains. Take the current situation as just a stage of a normal financial cycle, and instead of worrying, look for stocks that will potentially deliver gains in the long run and make some shrewd investment moves.
