Although the major indices have started to show evidence of a potential rebound in the last few trading days, the market is still in steep decline since the start of the year. You S & P500, for example, this year it fell by about 9%. Meanwhile, the Nasdaq composite it fell by about 15%. With the major indices shot down so significantly, it’s a good time for investors to shop.
A close look at the potential investments reveals that some of the technology’s top-quality names have also been up for sale. Market leader Apple (AAPL -0.61% ) And netflix (NFLX 1.97% ) are two great examples of high quality companies where it is worth considering taking holdings as shares are trading at lower valuations.
That’s why these two stocks might be right for your portfolio.
iPhone maker Apple (AAPL -0.61% ) saw its price-to-earnings ratio drop from 34 to 26 in the past year and from 29 to 26 in 2022 alone, as its shares retired. This is almost entirely due to broader market sentiment, not the company’s corporate performance. After all, Apple’s fiscal revenue and earnings per share for the first quarter, which grew 11% and 25%, respectively, broke analysts’ estimates.
Additionally, Luca Maestri, Apple’s chief financial officer, said in the company’s fiscal first quarter earnings statement that management expects “solid year-over-year revenue growth” during the current period with a record for the fiscal first quarter. And this expectation comes despite the expected “significant supply constraints”.
The anticipation for any growth over the current period is quite remarkable considering the year-ago comparison the company is facing: revenue increased 54% year-over-year in the second quarter of fiscal year 2021.
While a price-to-earnings ratio of 26 to the tech giant might not seem cheap, Apple’s top-notch quality of operations deserves a premium rating. Consider Apple’s 12-month free cash flow is a whopping $ 102 billion. Additionally, the company pays a small but growing dividend and is buying back its stock in droves. Apple’s stock count has been slashed by 22% over the past five years.
Netflix, meanwhile, is trading at a price / earnings ratio of 32, down from 53 at the start of the year. Although investors are concerned about the company’s slowdown in revenue growth, the streaming services company is still a growing stock. Fourth quarter revenue increased 16% year-over-year.
In addition, management expects its operating margin to continue to expand well over the long term (albeit with some volatility from year to year). “There is no change in our goal of consistently increasing our operating margin by an average increase of three percentage points per year over a period of a few years,” Netflix management said in the company’s fourth quarter letter to shareholders discussing its prospects.
Management’s indications for a further deceleration in the first quarter of 2022 and a temporary setback in its operating margin this year compared to 2021 could scare some investors. But it’s also part of the reason for the stock’s valuation significantly declining and today’s attractive buying opportunity for patient investors.
It’s also worth noting that Netflix could, at any time, open its business to a huge new revenue stream: digital advertising. The company currently only has subscription plans. But it is always possible for direction to change course and unlock a substantial new business opportunity in advertising by offering consumers an advertising-supported level to consider.
No investment is risk-free, including these two market leaders. But recent sales of these two stocks have certainly increased the odds of a potentially profitable long-term return for investors buying shares in these companies today.
This article represents the author’s opinion, who may disagree with the “official” recommendation position of a premium Motley Fool consulting service. We are heterogeneous! Questioning an investment thesis, even one of our own, helps all of us think critically about investing and make decisions that help us become smarter, happier, and richer.