Nerves are spreading fast in the stock market. Just weeks after the major market indexes peaked, stocks are plummeting by the Nasdaq Composite (NASDAQINDEX: ^IXIC) are already in a correction phase (a drop of more than 10% from a recent peak).
Stocks fell sharply for a third straight day on Monday as investors grappled with dismal economic data and a shock in Japan after the Nikkei fell by double digits as the Bank of Japan surprised investors with a rate hike, signaling a massive unwinding of a global “carry trade” in which investors borrowed yen at near-zero rates and invested it elsewhere.
Experienced investors know that while stock market selloffs are scary, they also present good buying opportunities. No one knows how long this correction will last, but it’s a good idea to have a list of stocks handy to buy if the decline continues. Keep reading to see three top stocks that are on sale right now.
1. Alphabet
Alphabet (NASDAQ: GOOG) (NASDAQ: GOOGL) has been one of the best technology stocks for over a decade, and a top member of both the FAANG stocks and the “Magnificent Seven.” This leading position shows no signs of changing, despite the upheaval brought about by generative AI technology.
Alphabet has overcome initial doubts about its AI capabilities and has delivered strong growth in recent quarters. It has also boosted margins, thanks in part to a round of layoffs last year. Its core digital advertising business, led by Google Search, continues to deliver solid growth, and its cloud computing business has boosted profits after years of losses.
By Monday, Alphabet stock had already fallen 17% from its peak a few weeks ago. The stock already looks like a good value with a price-earnings ratio of 23.
Even if the economy does slip into a recession, Alphabet’s competitive advantages remain intact, and the stock should eventually recover its recent losses and return to new highs. The second-quarter earnings report included a 14% increase in revenue and a 26% jump in operating profit, showing that there’s still plenty of growth left for the tech giant.
2. Taiwanese semiconductor production
Taiwanese semiconductor production (NYSE:TSM)or TSMC, is the world’s largest contract semiconductor foundry. It’s a vital cog in the global economy in normal times, but in the AI revolution it’s become even more valuable, making about 90% of the world’s advanced chips. It has built a competitive advantage through its technology, customer relationships with companies like Apple, Nvidia, AMDAnd Broadcomlarge capacity and a history of executions.
Like the rest of the semiconductor sector, TSMC is subject to cyclical forces, but its business has rebounded after a slowdown in the industry a year ago. In the second quarter, revenue rose 40%, or 33% in dollar terms, to $20.8 billion, while net income rose a similar rate.
Taiwan Semi’s stock is now down 25% from its peak a few weeks ago and is trading at a modest price-to-earnings ratio of 28. That seems like a great price for a company with its competitive advantages and growth figures.
3. Advanced micro devices
Advanced micro devices (NASDAQ: AMD) may not seem as resilient as the other two stocks on this list, but the chipmaker deserves a closer look after last week’s strong earnings report.
AMD is down more than 40% from its March peak, when enthusiasm for its new AI chips seemed to be at its peak. The stock is also down 28% from its Nasdaq peak a few weeks ago, even as last week’s earnings report impressed investors.
AMD, however, now appears to be riding the AI boom. When shares fell sharply on Friday, AMD closed flat, and on Monday it closed up 2%, while the Nasdaq lost 3.4%. Part of the reason for those gains is the dismantling of rival Intelwhich announced last Thursday night that it would lay off at least 15% of its workforce and stop paying dividends. Intel’s quarterly results and outlook also missed expectations, showing that ongoing challenges in its foundry business and beyond continue to plague the company.
That’s opened up an opportunity for AMD, and the company already looks to be capitalizing on the AI data center market with its new Mi300 chip. In the second quarter, AMD reported a 115% jump in data center revenue to $2.8 billion, the segment that’s driving the AI boom. While weakness in the embedded and gaming segments weighed on overall revenue growth, the momentum in the data center market bodes well for future results.
On an adjusted earnings per share basis, the stock is trading at a price-to-earnings ratio of 49, which seems like a good price given the growth of the datacenter. With Intel faltering and revenue rising in key areas, AMD looks like a good buy on any weakness from the market panic.
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Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. Jeremy Bowman has positions in Broadcom. The Motley Fool has positions in and recommends Advanced Micro Devices, Alphabet, Apple, Nvidia, and Taiwan Semiconductor Manufacturing. The Motley Fool recommends Broadcom and Intel and recommends the following options: long Jan 2025 $45 calls on Intel and short Aug 2024 $35 calls on Intel. The Motley Fool has a disclosure policy.
Nasdaq Stock Market Sell-Off: 3 Stocks to Put on Your Buy List was originally published by The Motley Fool
