One of Warren Buffett’s favorite quotes says “get greedy when others are fearful.” While there has been a general sense of pessimism in U.S. stock markets, sentiments towards tech stocks have been especially subdued. What are the best tech stocks that you can buy in June before an eventual recovery in U.S. stock markets?
U.S. tech stocks have consistently outperformed the markets over the last decade. However, in 2021, we saw a pivot away from tech stocks to value and cyclicals. In 2022, tech stocks are in a bear market even though energy and material stocks are outperforming.
Tech stocks went from boom to bust.
Only about a year ago, tech stocks were the flavor of the season as everyone got bullish on the “digital transformation.” However, markets got a little too carried away and the valuations of tech stocks, especially the growth names, reached unsustainable levels. As the Federal Reserve put the brakes on the easy money supply, the valuations started to look even uglier.
The growth slowdown, which many tech companies are witnessing, hasn’t helped matters either. Markets valued growth stocks on assumptions of super high growth rates for years, if not decades, and a growth slowdown is the last thing that they wanted, given the elevated valuations.
Are tech stocks a good investment now?
There could still be pain in some of the tech stocks, especially loss-making growth companies. However, some of the bigger tech companies look attractive from a risk-return perspective. While there could be short-term volatility in these stocks, they look like good buys now for long-term investors.
Which growth stocks should investors consider buying now?
In the FAANG space, Meta Platforms and Alphabet look like good buys. Nvidia, which has created tremendous investor wealth over the last decade, looks like another good buy after the recent crash. Uber also looks like a good tech stock to buy in 2022.
Meta Platforms and Alphabet look like FAANG stocks to buy in June.
According to CNBC, even the coveted FAANG pack has come under pressure in 2022. The FAANG pack seems to have lost its strength and Netflix is the worst-performing S&P 500 stock in 2022. Meta Platforms isn't far behind and is among the bottom 100 S&P 500 performers. However, the risk-reward for Meta Platforms (NYSE: FB) and Alphabet (NYSE: GOOG) look attractive now.
Meta Platforms’ short-term performance has been hit by Apple iPhone privacy rules as well as a slowdown in ad spending. The company’s ongoing investment into the metaverse has also taken a toll on the earnings. It also lost active users in the fourth quarter of 2021 for the first time in its history.
However, there are three main reasons why Meta Platforms looks like a good buy. First, the company has a strong moat in the social media industry. Second, it's among the best ways to play the metaverse, which looks like an exciting investment opportunity. Finally, at an NTM PE multiple of 16.4x, FB stock looks too cheap to ignore.
Alphabet stock also looks attractive
With an NTM PE of just under 20x, GOOG stock also looks attractive. Global digital ad spending is a secular growth story that makes GOOG an attractive bet. The company’s cloud operations are also a profitability driver. While YouTube’s recent performance has disappointed, its monetization would drive Alphabet’s earnings growth.
There are concerns over digital tax and global furor over the alleged monopoly of U.S. tech giants like Alphabet. However, at these prices, it looks like a good tech stock to buy for the long term.
Uber stock looks undervalued and is a good buy.
Concerns about a slowing U.S. economy have taken a toll on Uber (NYSE: UBER) stock. The sell-off in companies like DiDi, Grab, and Zomato, where Uber holds a significant stake, hasn’t helped matters either and the company booked a pre-tax loss of $5.6 billion on its equity investments in the first quarter of 2022.
However, with a strong presence in key global cities and a focus on profitability, Uber looks like a tech stock worth having. Its valuations also look quite reasonable and a recovery in investee companies and sustainable profitability could take the stock much higher in the long term.
Nvidia is a good tech stock to buy.
Nvidia (NYSE: NVDA) stock is also down sharply from its highs. The stock has come under pressure amid concerns about a slowdown in consumer spending, which would have a negative impact on chip demand. Also, Nvidia’s valuations ran somewhat above the fundamentals and we have seen a derating of its valuation multiples.
While Nvidia is facing short-term headwinds, its long-term forecast looks positive. At an NTM PE of 34x, Nvidia is another tech stock worth buying now.