2022 has been a humiliating year for technology stocks after they had dominated the market for the better part of a decade. Three of the most valuable businesses in the world: Apple (NASDAQ: Microsoft (NASDAQ: AAPL), Alphabet and Microsoft (NASDAQ: NASDAQ: GOOG) This year, the stock prices of all three companies — GOOGL) — have decreased by more than double digits. These three investments, on the other hand, are a no-brainer purchase prior to 2023 due to their falling prices.
1. There is no other cash cow quite like Apple,
which is the public company with the highest value in the world. Apple’s fiscal year 2022 (FY22) revenue of $394.3 billion, an 8 percent increase year over year, exceeded Wall Street’s expectations.
The company’s ability to generate free cash flow (FCF) may be more important than revenue: $111,4 trillion The FCF for comparable Big Tech companies over that time period is provided for perspective:
FCF is important because it basically tells a company how much money it has. This is important at any time, but especially now, when the economy is uncertain and a recession is coming. Apple has everything it needs to get through any bad economic storm we might face.
Everyone knows that Apple’s iPhone is the most popular product, but the company’s services business is likely to grow first in the future. In FY22, Apple’s services division generated $78.1 billion in revenue, an increase of over 14% from the previous year. Once you’re a part of the Apple ecosystem, it’s hard to get out. As Apple gives its customers more reasons to stay, like offering financial services, it will continue to lead Big Tech.
2. Microsoft’s ingrainedness
in the business world is what makes Microsoft an excellent investment and ultimately sets it apart from its rivals. Microsoft has successfully made itself virtually indispensable in a variety of areas, including cloud services, LinkedIn recruiting, Excel spreadsheets, personal computers, and more.
All indications point to a noticeable decrease in consumer spending due to economic conditions as we get closer to 2023. The majority of businesses will be affected by this, but Microsoft’s diverse revenue streams and numerous corporate clients can help shield it. Although it is not recession-proof, it will be one of the last to experience its effects.
Microsoft also has higher gross profit margins than other Big Tech companies due to how much money it makes from software. Because of this, it can make more money from fewer total sales. Compared to Apple and Alphabet, which had gross margins of 43% and 56%, at the end of this year’s third quarter, its gross profit margin was 68%.
Alphabet’s 2022 performance has been the worst of the three, with a 35% decline year to date. While many stocks have been falling this year without a clear business reason, Alphabet’s has suffered more, primarily as a result of a decline in ad revenue.
That was to be expected, however. Businesses had to cut costs because of interest rates and inflation, and advertising is typically one place to start.
The majority of Alphabet’s revenue comes from digital advertising, which is cyclical. Digital advertisements perform well when the economy is doing well, and vice versa. The parent company of Google will probably suffer more from a recession in 2023 than other companies on this list, but its long-term outlook makes it a good investment.
Future growth of Alphabet
will be fueled by e-commerce, a distinct form of advertising. The business is aiming to grow through e-commerce-related online searches. No matter where they wind up, it wants to be the first location they visit when they begin buying. On the other side of this difficult economic moment, the future may appear extremely bright if enough effort is put into snatching up portion of the e-commerce pie by keeping to its strengths. Google has an unrivaled user base of billions of users.
The price-to-earnings (P/E) ratio is a metric that can provide additional context regarding a stock’s price. These tech stocks might be too cheap to pass up. The P/E proportion lets you know the amount you’re paying for each dollar of an organization’s income. The higher the P/E proportion, the more costly a stock is comparative with its income. However, the industry largely determines whether a P/E ratio is “high.”
Despite the fact that these stocks have fallen in price as a result of the recent sell-offs, the tech sector has historically high P/E ratios. The decline in their P/E ratios over the past ten years is shown in this chart.
Even if you are not a value investor, investing in great companies that are selling for a low price is rarely a bad idea.