Another week, another steep drop in tech and growth stocks. 2022 is off to a terrible start, and for many high-growth companies, 2021 wasn't all that great either. Investing is hard, especially when it comes to managing emotions and expectations.
That being said, many businesses are still quite healthy, contrary to what their stock chart might be indicating. If you're looking for a great long-term investment after the sell-off, three Fool.com contributors think Netflix (NFLX 4.17%), Lam Research (LRCX 2.23%), and Qualcomm (QCOM 0.73%) are worth a serious look right now.
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"Buy on the dip," they say
Anders Bylund (Netflix): You know that old adage about buying certain stocks on the dips? Well, video-streaming veteran Netflix offers a perfect opportunity to do exactly that today.
The stock looked mildly undervalued as Netflix approached its fourth-quarter earnings report. Trading at 46 times trailing earnings on Wednesday evening, Netflix's valuation stood at a six-year low:
NFLX Normalized PE Ratio data by YCharts
One solid earnings report and a 22% stock plunge later, Netflix trades at 35 times trailing earnings. Yes, the subscriber additions forecast for the first quarter of 2022 came in below expectations as consumers around the world continue to struggle with the coronavirus pandemic. Netflix's management kept growth projections on the conservative side in this unpredictable market environment.
But the long-term business opportunity is still incredible. Cash profits have broken through to the positive side and are only expected to grow in the coming years. The most inspiring growth story on the stock market continues as Netflix moves into a new era of consistent cash flows. And you can pick up Netflix shares at prices not seen since the spring of 2020. Intelligent investors should pounce on this rare opportunity.
This best-in-class semiconductor equipment stock has sold off for no reason
Billy Duberstein (Lam Research): Etch and deposition equipment leader Lam Research spiked to all-time highs last week, but has subsequently sold off more than 15% this week on absolutely no news. Keep in mind, this sell-off arrived after large customer Taiwan Semiconductor Manufacturing (TSM 2.84%) delivered blowout earnings and gave above-consensus guidance for its 2022 capital spending plans.
After the fall, Lam Research trades at just 17.8 times 2022 estimated earnings. But keep in mind, Lam Research's fiscal year ends in June, so that is practically a trailing number. That P/E multiple is well below not only high-growth tech stocks, but even the market at large.
Some may be wondering if the current boom in semiconductor production will eventually lead to a bust, but that really doesn't seem in the cards for at least another year. Besides TSM's big spending plans, Intel (INTC -0.38%) also announced a massive new factory last week, to be built in Ohio. Meanwhile, a recent Digitimes article pointed to an impending rally in DRAM and NAND prices due to supply constraints. Lam Research is especially relevant for NAND flash production, and healthy NAND capital expenditure (capex) seems to be in the cards for 2022.
Additionally, Lam Research generates an outsized proportion of its revenue from services, at roughly 32% of its revenue last quarter. Those services revenues are somewhat recurring and tied to the company's ever-growing installed base. So, the massive growth in equipment sales last year and this year should lead to consistently growing services revenue going forward, even if there's a pause in equipment sales at some point.
Basically, there's no fundamental reason for the Lam sell-off. The company will release its December quarter figures on Wednesday, Jan. 26, so investors may wish to look at this top semiconductor stock before it reports.
Mobile chips are expanding way beyond smartphones
Nicholas Rossolillo (Qualcomm): During its investor day presentation in November, Qualcomm talked a lot about how the entire computing industry is starting to converge on smartphone architecture. Mobility is now a given, and smartphones are a potent combination of computing power and energy efficiency. Their design can be adopted by other mobile devices too.
That's where Qualcomm comes in, as the global leader in mobile chips. Nearly every smartphone on the planet has some Qualcomm circuitry in it, and the 5G mobile network upgrade cycle has reinvigorated the chip designer's marquee segment with renewed life. But the company thinks it has a lot to gain in other areas of technology in the coming years, especially in the automotive industry, wirelessly connected industrial equipment, smart home devices, and network infrastructure.
While the smartphone business continues to chug higher thanks to 5G, Qualcomm thinks its semiconductor designs for autos and other mobile devices will soar in the coming years. This internal revolution is already underway. The company reported a 51% gain in sales in its auto division in 2021, and a 67% gain in IoT (Internet of Things). Each segment is a small percentage of overall revenue, but that is poised to change in dramatic fashion in the course of the next decade as it sees both areas growing at a fast double-digit percentage pace for the foreseeable future.
That tees up Qualcomm as a steady and highly profitable stock to own for the 2020s. But shares are being beat up along with the rest of the tech sector so far this year. Shares are 11% down from their all-time high registered in the last month. That values the stock at less than 22 times trailing-12-month free cash flow, a real steal considering management is forecasting at least a 22% increase in year-over-year revenue and a 34% year-over-year increase in adjusted earnings per share to kick off fiscal 2022. I'm a buyer after the market punishment of Qualcomm.
