Even after the recent sell-offs for tech stocks, it might still seem challenging to find safer, value-oriented investments in the sector. Many technology stocks still trade at highly growth-dependent valuations, and that raises the risk profile in the event of a marketwide or tech-specific crash.
However, there are still strong technology companies trading at reasonable valuations that have what it takes to deliver solid returns and help you prosper through volatility. Read on to see why these Motley Fool contributors identified AT&T (T 1.10%), Applied Materials (AMAT -2.34%), and Facebook (META -4.13%) as value stocks that could help fortify your portfolio and deliver impressive performance over the long term.
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Underappreciated growth potential and a great dividend
Keith Noonan (AT&T): Telecom and entertainment giant AT&T has its weak points, but the stock already looks attractively priced. Building a position in the company if shares are dragged lower in a market pullback could be a great move. Shares are trading at less than 9.5 times this year's expected earnings and sport a 7% dividend yield, and growth potential here is greater than recent business performance might suggest.
AT&T's $67 billion acquisition of DIRECTV back in 2015 has been an albatross around the business' neck almost from the get-go. Consumers were already ditching cable and satellite television packages in favor of streaming platforms like Netflix, and AT&T's recent move to spin off and divest a 30% stake in DIRECTV in a deal valuing the business at roughly $16 billion shows the merger didn't pan out as intended.
The good news is that AT&T still has a strong position in mobile wireless service and entertainment content. Mobile connectivity has never been more important and will only become increasingly integrated with devices and services as 5G paves the way for new features. And the telecom is positioned to benefit from the rollout of the next-generation network technology. The company's HBO Max streaming service also looks to be picking up some steam, and AT&T's Warner unit has a great collection of franchises and production studios to help power subscription growth over the long term.
AT&T might not prove completely resistant to a market crash, but a combination of business strengths, non-prohibitive valuation metrics, and a great returned-income component should help the stock persevere through volatility. For a reasonably sturdy company operating in sectors that offer feasible paths to long-term growth, AT&T offers just about the best dividend profile you're likely to find, and shares continue to look attractively priced.
Profit from the chipocalypse with Applied Materials
Jamal Carnette (Applied Materials): The long-feared "chipocalypse" has finally arrived! The U.S. is currently amid a significant chip shortage that has caused major automakers like General Motors and Ford to delay vehicle production.
The reasons for the current chip shortage are myriad, including factory fires, pandemic-related delays, and even geopolitics and tariffs. However, the solution is simple: more chip production. Enter Applied Materials. The company is not a chipmaker, but rather supplies the critical equipment semiconductor companies needed to manufacture their product.
Applied Materials stock has been unstoppable, advancing 180% in the last year alone. The most recent leg up was due to a strong first quarter that saw the company grow revenue and free cash flow 24% and 47%, respectively, over the prior year's corresponding period. Despite the run, shares continue to trade for less than the greater market, going for 19.5 times forward earnings versus the S&P 500 that trades at 22.3 times.
The risk for Applied Materials is chipmakers will overproduce (like they did in 2018) and then cut back on production and capital spending in future years. However, the future looks bright for Applied Materials, both in the short term from increased auto industry demand and in the long term as new technologies like artificial intelligence require a significant ramp up in chip manufacturing.
The social media king
Joe Tenebruso (Facebook): One of the best ways to make money in the stock market is to buy shares of elite enterprises when their shares are temporarily trading at a discount. Excitingly, we have one such opportunity now with Facebook.
Due in part to calls for increased regulation and criticism from people who believe the social media giant hasn't done enough to combat the spread of misinformation and hate speech on its platform, Facebook's stock is currently trading at a below-market price-to-earnings (P/E) ratio. Its shares can currently be had for less than 30 times trailing earnings. Meanwhile, the market -- as measured by the S&P 500 -- trades at roughly 45 times earnings.
If you're thinking that the performance of Facebook's stock will be determined by its future profits, rather than what it's done in the past, you're absolutely correct. And here, too, the numbers suggest the social media titan's shares are quite a bargain. Facebook is trading at a forward P/E ratio of 21.5 based on Wall Street's profit estimates for 2022, even as its EPS is projected to grow by 21.5% annually over the next five years. That places its price-to-earnings-to-growth (PEG) ratio at 1 -- quite a steal for a business of Facebook's quality.
Better still, Facebook is working to address the concerns of its critics. It's investing heavily to improve the safety and privacy of its users. Moreover, while Facebook's competitive dominance remains a hot-button issue for politicians, it's unlikely that regulators will force a breakup of its social media assets. And as more investors come to realize that these fears are overblown, Facebook's stock price could soar.
