It’s not easy to find bargains in the tech sector these days.
While prices and valuations have crashed across much of the sector, that’s partly due to dimming growth prospects in areas like software, e-commerce, and digital advertising, which all boomed during the pandemic.
However, there are some stocks that are well-priced for future growth after the sell-off. Keep reading to see two of them.
1. Meta Platforms
Meta Platforms (META -0.08%) crashed through much of 2022 as the Facebook parent’s metaverse experiment failed to deliver the hoped-for results, and the company continued to lose market share to TikTok.
However, over the last six months, the stock has caught fire as the company has taken steps to reverse its earlier mistakes.
Meta has announced two rounds of layoffs since November and reduced its real estate footprint as CEO Mark Zuckerberg has repeatedly declared 2023 to be a year of efficiency.
But there are more than cost cuts driving the stock price higher. The company is investing in artificial intelligence (AI), having unveiled its latest large language model LLaMA just weeks ago, and Reels, the short-video product it introduced to compete with TikTok, is expected to no longer be a headwind on ad monetization by the end of the year. In fact, it should grow profitably next year.
After losing $14 billion on Reality Labs last year, its division focused on the metaverse, management is also committed to controlling spending on the metaverse in order to grow overall operating profit.
At its current price-to-earnings valuation of 25, Meta may not seem like a bargain. But the company looks poised to return to profit growth thanks to its cost-cutting initiatives and monetization improvement with Reels. Additionally, the direct headwind from Apple’s ad tracking transparency initiative has also rolled off, making comparisons easier. Meta should also benefit from a secular recovery in the economy and a comeback in digital advertising.
After several quarters of weak revenue growth and declining profits, analysts expect the company to return to bottom-line growth in the second half of the year, and the analyst consensus calls for earnings per share of $12.43. Based on that figure, the stock is trading at a forward price-to-earnings ratio of 17, which is not a bad price given Meta’s competitive advantages and new commitment to profitability.
2. PayPal
Another high-profile tech stock that has taken a hit in the bear market is PayPal (PYPL 0.81%). The leading digital payments platform is down a whopping 76% from its peak in 2021. The post-pandemic normalization has translated into headwinds for digital spending as e-commerce growth has slowed, and the company is even losing market share to Apple.
Still, the major reason for the company’s struggles seems to be the global economy and the threat of a recession around much of the world.
Despite those headwinds, PayPal still managed to grow currency-neutral revenue by 9% in the fourth quarter, and total payment volume was up 9% on a currency-neutral basis to $357.4 billion.
Although adjusted earnings per share fell 10% in 2022 to $4.13, management has a plan to turn that around in 2023 with the help of cost-cutting. It’s forecasting 18% growth in adjusted EPS to $4.87, and the company is also planning to use 75% of its free cash flow in 2023 to buy back shares, continuing a similar pace of repurchases from the past few years, but now at a lower valuation — meaning the stock is well-priced for buybacks.
Paypal stock is now trading at just 15 times forward earnings. Despite its challenges with the current economy and the threat from Apple, that looks like a bargain price to pay for its positioning in a large and growing market.