Holding good companies for a long time is one of the best ways to build wealth in the stock market, as such a strategy allows investors to take advantage of the power of compounding and benefit from secular growth trends in fast-growing markets.
That's why investors looking to buy potential long-term winners should take a closer look at the likes of Micron Technology (MU 2.92%), Intel (INTC -9.20%), and Apple (AAPL -0.35%). These three tech companies not only have great potential but their stocks are also trading at attractive valuations right now. Let's look closely at the reasons why these three tech stocks are worth buying today and holding on to for a long time.
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1. Micron Technology
Micron Technology sells memory chips that are used in a variety of applications, ranging from personal computers to data centers to smartphones. So, the chipmaker operates in a market that's built for secular growth in the long run, thanks to an increase in the amount of data being generated due to connected cars, automated factories, the Internet of Things (IoT), artificial intelligence (AI) applications, fifth-generation (5G) wireless networks, and others.
Research firm IDC estimates that the amount of data that will be created and replicated globally is set to grow at an annual pace of 23% through 2025. It won't be surprising to see data creation and storage continue to expand at elevated levels beyond that, as new applications such as the metaverse and self-driving cars come into the fray.
A third-party estimate points out that the amount of data generated in 2030 could be 10 times higher than last year's levels. By 2050, the amount of data being generated could be 1,000 to 10,000 times bigger than last year. All this means that the demand for Micron's DRAM (dynamic random-access memory) and NAND (short for "not and") flash memory should keep increasing to store and process more data.
That's why investors looking to add a cheap growth stock to their portfolios shouldn't miss out on Micron stock, as it is trading at just 14.6 times trailing earnings and 10.2 times forward earnings. Those are attractive multiples considering that stocks in the S&P 500 have an average price-to-earnings (P/E) ratio of 29. Buying Micron stock at its current valuation seems like a no-brainer, as its earnings are expected to increase at an annual pace of nearly 24% for the next five years.
It is worth noting that Micron is growing at a much faster pace than those expectations. The company's earnings increased 114% in fiscal 2021 (ended on Sept. 2). Micron seems on its way to replicating such impressive earnings growth this fiscal year as well, as its earnings jumped 177% year over year in the first quarter of fiscal 2022 (ended on Dec. 2). This makes it clear that Micron is a bargain that's worth buying right now and holding on to for a long time.
2. Intel
Intel may seem like a surprise pick as a long-term investment right now, given the company's struggles against rivals like Advanced Micro Devices (AMD 2.37%), but there are signs of a turnaround at Chipzilla that make it worth a look.
Intel has started showing that it can get back at its rivals. The company's Alder Lake CPUs (central processing units) are reportedly gaining traction among customers. Sales data from German retailer MindFactory reveals that Intel had a 30% share of CPU sales at the retailer, which was its highest sales share at the retailer so far in 2021.
That was a big improvement over the 23% sales share Intel held at MindFactory in October. It is worth noting that the Alder Lake chips hit the market in November, so Intel's resurgence can be credited to their arrival. Intel's improved sales performance after the launch of the Alder Lake chips isn't surprising. These processors are based on a 10-nanometer process, which means that they have erased the competitive edge that AMD was enjoying earlier thanks to the popularity of its 7nm process chips.
That's because Intel's 10nm-process chips are as dense as AMD's 7nm process, indicating that they can deliver identical performance at aggressive prices. As it turns out, the Alder Lake chips have reportedly taken the gaming crown away from AMD, and Intel is also giving its rival a run for its money on the pricing front.
Intel is now looking to regain its technology lead from rivals by 2025. Its 7nm Meteor Lake chips are currently in the testing phase and are expected to hit the market next year. The company plans to launch 3nm chips in the second half of 2023, followed by 2nm chips in 2024. As the processors in Intel's chips get smaller, they are likely to get more powerful. The number of transistors packed in a chip will be higher, allowing for more computing power and less power consumption.
As such, Intel looks capable of turning its recent spark into a full-blown comeback, especially considering that it will ramp up its capital spending dramatically to achieve its goals. With the stock trading at just 10 times trailing earnings, now may be a good time to go long before its potential turnaround makes it more expensive.
3. Apple
Apple stock may not look like a bargain exactly, as it is trading at 31 times trailing earnings, but it is a bargain considering that it was trading at 40 times earnings in 2020. It would make sense to buy Apple stock right now, given that it is in resurgent mode over the past six months and could get more expensive in 2022.
AAPL data by YCharts
One of the reasons why Apple's stock rally could continue is because sales of the iPhone are reportedly going to get a lot better in 2022. A report from the Taiwanese website DigiTimes points out that Apple could increase iPhone production by 30% in the first half of 2022 to meet robust end-market demand. What's more, the company could end the year with as many as 300 million iPhone shipments as per the report, which would be a huge increase over this year's estimated shipments of 240 million units.
While that looks like a solid near-term catalyst for Apple stock, it is worth noting that the company is working on new avenues to boost long-term growth. For instance, Apple is reportedly working on a fully autonomous electric car that's touted to hit the market in 2025. It is no secret that Apple has already been working on self-driving vehicles, as the tech titan has a fleet of 69 Lexus cars in California.
Wall Street seems upbeat about the launch of an Apple car. Morgan Stanley's Katy Huberty estimates that the move into this market could double the company's revenue and market capitalization in the long run. This, however, is not the only potential catalyst for Apple. The company is reportedly working on an augmented reality/virtual reality (AR/VR) headset that could hit the market in 2022.
Such a device could unlock another big revenue opportunity for Apple, as AR/VR headsets are going to open the window to the metaverse for millions of customers around the globe. As such, Apple is pulling the right strings to ensure that it remains a top tech stock in the long run, which is why investors looking to add this tech titan to their portfolios should consider buying it before it gets expensive.
