The word “cheap” doesn’t get applied to many tech stocks these days, especially after a rally that has seen the Nasdaq Composite index soar by 46% in the past year. And it’s true that you’ll have to pay much more for quality businesses today than you would have shelled out back in early 2023.
That’s the price an investor must pay for a brighter sentiment on Wall Street. As billionaire Warren Buffett pointed out in 2008, “If you wait for the robins, spring will be over.”
Still, there are always relative values in the market, especially if your investing time frame stretches across decades. Let’s look at two attractively priced “tech” stocks (see below for an explanation of why “tech” is in quotes).
1. This Apple looks tasty
Unlike software rival Microsoft, Apple (NASDAQ: AAPL) isn’t in the $3 trillion market valuation club right now. That’s mainly because the iPhone maker’s shares have underperformed the market by a wide margin in recent months. The stock is up just 16% in the past year compared to Microsoft’s 66% spike.
That gap sets up a potentially attractive buying opportunity for patient investors.
Sure, Apple is going through a bit of a slump right now. Sales barely grew last quarter, rising just 2% year over year compared to Microsoft’s 16% surge. Growth prospects don’t look particularly encouraging for the next year or so, either. Most Wall Street pros are looking for about a 6% sales uptick next year following modest declines in fiscal 2024.
Consider the value you get from owning Apple during this time of elevated pessimism, though. The stock is valued at just 7 times annual sales compared to Microsoft’s price-to-sales (P/S) ratio of 14. Apple prioritizes ample cash returns, too, with $27 billion heading directly to shareholders last quarter alone in the form of share buybacks and dividends.
These cash returns, which mainly arrive through buybacks, should continue helping earnings per share outpace sales growth in 2024 and beyond. That will be a nice buffer for shareholders as they wait for Apple’s new product releases — along with its push into more services — to reaccelerate growth.
2. Walmart should be considered a tech stock
I know it might seem like a stretch to call Walmart (NYSE: WMT) a tech stock, but hear me out. The retailer just finished a fantastic year that saw e-commerce grow by 23% to cross $100 billion in annual sales. For context, Amazon grew its product sales by 5% in 2023, up to $256 billion; eBay reported $73 billion of annual sales volume.
Walmart is also getting more revenue growth from other tech sources like its surging digital advertising business. It’s little surprise, then, that profit margins are rising. The chain achieved 10% higher operating income last year, outpacing Walmart’s 6% revenue uptick.
Even with strong growth in its tech-focused segments, traditional retailing will be the main show at Walmart for the foreseeable future. The good news is that this division is firing on all cylinders, too. Customer traffic was up a healthy 4% year over year in the holiday period, customer satisfaction levels are rising, and the chain is snapping up market share in groceries and consumer discretionary products, including from higher-income shoppers.
You can own Walmart stock for a P/S below 1, or about the same valuation that you would pay for Target stock right now. That price seems like a great deal for a quickly growing e-commerce business that’s supported by a dominant brick-and-mortar enterprise.
Should you invest $1,000 in Apple right now?
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John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Demitri Kalogeropoulos has positions in Amazon and Apple. The Motley Fool has positions in and recommends Amazon, Apple, Microsoft, Target, and Walmart. The Motley Fool recommends eBay and recommends the following options: long January 2026 $395 calls on Microsoft, short April 2024 $45 calls on eBay, and short January 2026 $405 calls on Microsoft. The Motley Fool has a disclosure policy.
2 Cheap “Tech” Stocks to Buy Right Now was originally published by The Motley Fool
