The recent malaise in the stock market has given way to a long-awaited correction. Tech stocks, which have outpaced the broader market during its historic bull run, are taking it on the chin.
The return of volatility, the threat of a looming trade war with China, and a daily roller coaster ride have timid investors racing for the exits. However, rather than stuffing their money under their mattresses, stockholders should consider this a time for celebration, allowing them to buy quality companies at discounted prices.
With that in mind, we asked three top Motley Fool investors to choose companies that they believed provided the most compelling opportunities in the tech sector. They offered convincing arguments for Amazon.com (AMZN 1.30%), Arista Networks (ANET 2.33%), and Netflix (NFLX 4.17%).
Image source: Getty Images.
Take advantage of Trump's tantrums
Jeremy Bowman (Amazon): The recent sell-off in tech stocks has created some appealing buying opportunities as the Nasdaq is now in a correction, but none seem more ripe than Amazon, which has received the blunt end of Trump's Twitter tweets in recent weeks.
The president has taken to the social network to bash the e-commerce giant for avoiding taxes, abusing the U.S. Post Office, and manipulating coverage at The Washington Post, which Amazon CEO Jeff Bezos separately owns. As a result, Amazon stock has fallen as much as 16% from its all-time high in March, but we've seen this story unfold before, and Amazon shares always bounce back.
Trump's recent pronouncements are mostly repeats of arguments he's already made. At the end of last December, he tweeted that Amazon is taking advantage of the post office, and he has argued before that the company is damaging America's towns by unfairly competing with brick-and-mortar retailers. The stock often sells off in response to the outburst, but then recovers.
Image source: Amazon.
Despite those tirades, there is little Trump can actually do to threaten Amazon that wouldn't be seen as overstepping his or the government's reach. Meanwhile, Amazon appears to be firing on all cylinders. The company is planning to offer two-hour delivery from all Whole Foods Markets by the end of the year, and its opening of the cashierless Amazon Go store was a smashing success, with more Go stores expected this year. Finally, the company also announced a plan with JPMorgan Chase and Berkshire Hathaway, potentially disrupting a sixth of the economy.
I'd expect another strong round of results when the company reports in late April/early May. By then, the Trump tweets should be old news, and Amazon should be back to its winning ways.
No news is good news
Danny Vena (Netflix): When the stock market experiences a correction, like we've been seeing lately, it doesn't discriminate between good companies and bad. The baby sometimes gets thrown out with the bath water, as the saying goes. Netflix is one such company, selling at a 12% discount from its recent highs, with no company-specific news of note. The growth story that's been driving Netflix shares to new heights remains firmly in place.
The number of U.S. households that are only using a streaming service to get their TV and movie fix has nearly tripled in the past five years, according to a report by the Video Advertising Bureau, and 71% of internet users subscribe to an over-the-top service. The report also found that an estimated 200 million U.S. consumers -- nearly two-thirds of the population -- will subscribe to a streaming service by 2021. The biggest beneficiary of that trend? Netflix.
It is also important to remember that it was only two years ago that the streaming pioneer launched its service globally. Since then, its worldwide subscribers have skyrocketed, more than doubling to 63 million to end 2017. That's a drop on the bucket compared to the company's total addressable market of between 400 million to 450 million international subscribers, and that's in addition to 54 million current domestic customers that could grow to 90 million.
Image source: Netflix.
Additionally, a growing body of research confirms that original and exclusive programming is the single most important factor consumers consider when deciding on a streaming service. Netflix is keenly aware of this, and it plans to spend $8 billion on content in the coming year. In its most recent quarter, the company gained 8.3 million new subscribers, the highest quarter in its history, and exceeding the 6.3 million the company forecast. Netflix said it was "due primarily to stronger than expected acquisition fueled by our original content slate."
With a worldwide opportunity and rapidly accelerating growth, Netflix is a top stock to buy in April.
A disruptive tech leader
Steve Symington (Arista Networks): When Arista Networks announced fourth-quarter results in mid-February, there was nothing not to love about its report. Revenue soared nearly 43% year over year, to $467.9 million -- well above the high end of its guidance -- and adjusted earnings of $1.71 per share handily beat the $1.41 most investors were anticipating. Arista CEO Jayshree Ullal also called 2017 a "tipping point" for the company, as its software-driven cloud networking architecture began to enjoy "mainstream acceptance" while disrupting traditional hardware-based network infrastructures.
However, shares plunged more than 18% the following day, after management warned of decelerating growth in 2018 against increasingly "tough comparables" with each passing quarter. But I don't think the market's punishment fits Arista Networks' crime.
Image source: Getty Images.
After all, Arista has made a habit of under-promising and over-delivering in recent quarters. And even then, it shouldn't have been a huge surprise, as Arista simply reiterated its previous guidance calling for 2018 revenue growth to moderate to a "more typical" mid-20% rate -- an approximate prediction that fell just slightly short of Wall Street's models for growth in the high 20% range.
That said, the market appeared to have come to its senses with Arista stock all but recouping its post-earnings losses in the few weeks after that report. But Arista has since plunged again along with the broader decline in tech stocks in recent days. For long-term investors willing to take advantage of this second pullback, I think it's a fantastic opportunity to buy the stock.
