Throughout much of the pandemic, it seemed the stock market was on fire. The Invesco QQQ Trust (QQQ 0.34%) gained 135% from the bottom on March 23, 2020, to the top on November 22, 2021.
Recently, things have changed. The market is in a correction -- defined as a top-to-bottom decline of at least 10%. The Invesco Trust is down 18% from its all-time high and closing in on bear market territory -- a drop of 20% or more.
But there is a silver lining to these types of declines: stocks get cheaper -- even good ones. Stock market corrections are indiscriminate. It's a case of the proverbial baby being thrown out with the bathwater. Therefore, long-term investors have a chance to pick up companies with solid fundamentals on the cheap -- or at least significantly cheaper than before.
Let's take a look at three such names.
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1. Advanced Mirco Devices: Gaming and Crypto Mining are driving growth
Advanced Micro Devices (AMD -0.35%) was one of those stocks that powered the market over the last two years. Long considered a lesser version of Intel (INTC 0.64%), AMD has flipped the script in recent years -- posting a 105% gain over the last two years, compared to a 29% loss for Intel.
One factor driving AMD's outperformance: growth. The company grew revenues 68% clip during the past 12 months. Behind that impressive growth rate are two significant macro trends: gaming and crypto mining. Both require high-speed, high-performance graphics processing units (GPUs) that AMD produces. Advances in virtual reality gaming will require even more -- and more expensive -- GPUs. Further adoption of bitcoin -- or a resurgence in its price with inflation at multi-year highs -- would encourage more crypto mining and raise demand for GPUs.
Lastly, AMD's $49 billion acquisition of Xilinx (XLNX), which closed on Feb. 14, will expand AMD's product offerings. Xilinx makes field-programmable gate arrays. These are specialized chips used in everything from processing video for automotive rearview cameras to artificial intelligence. The merger will allow AMD to boost its sales to the auto, military, and aerospace sectors.
As for the future, analysts expect 30% annual revenue growth from AMD over the next five years. With AMD 30% off its all-time highs from last year, the dip might be a great buying opportunity.
2. Fortinet: Protecting from hacks and boasting industry-best margins
Fortinet (FTNT 1.00%), down 13% year to date, provides cybersecurity technology to various organizations, including governments, public companies, and small businesses. Cybersecurity -- the protection against the unlawful or unauthorized use of electronic data -- is all over the news.
Last May, hackers shut down the Colonial Pipeline after a successful ransomware attack. Gas stations from Georgia to Maryland ran out of gas within days. Episodes like this demonstrate the need for cybersecurity and how many companies are woefully unprepared to address these concerns on their own.
Fortinet provides businesses with hardware and software solutions to keep their data and operations safe. Sales of its FortiGate firewall product and associated services accounted for $639 million -- 66% of its revenue in the most recent quarter. Overall, earnings per share have grown 25% year-over-year, with estimates for another 37% surge in earnings in 2022.
In addition to solid growth, Fortinet's 26.2% adjusted operating margins are among the highest in its peer group. Analysts expect adjusted operating margins to dip slightly to 25% in 2022, then rebound to 26% in 2023.
Meanwhile, its buyback program ($742 million in 2021) has delivered notable returns to shareholders. The company has the authorization from its board to buy back up to an additional $1.5 billion of stock during the next year.
Image source: Getty Images.
3. Paycom: The rise of self-service means solid growth for years to come.
It's a trend you've no doubt encountered: self-service. It might mean ordering a Big Mac from your phone at McDonald's or scanning your own groceries at Target. The reason for all this new-fangled automation? Employees are expensive -- and getting more so by the day. Businesses want to cut costs, and one of the easiest ways to do so is with automation.
And that's where Paycom (PAYC -0.10%) comes in. The company provides cloud-based payroll solutions -- think of it as self-service for human resources. It allows employees to directly access payroll databases to review paystubs and make necessary updates to personal information. Paycom's software may not be cheap, but it's often far more affordable than maintaining a sprawling internal payroll system.
Paycom's growth rates back up the trend. Revenues grew 25.4% over the last year; earnings were up 36.6%. What's more, analysts expect Paycom to keep growing sales at roughly the same 25% clip for the next five years. Now, down 42% from its all-time highs, Paycom looks like a buy.
What it all means for investors
Just because a market is in correction doesn't mean there aren't opportunities for investors. Quite the contrary. Corrections and bear markets are often the best time to buy. Nevertheless, if you're a long-term investor looking to buy tech stocks with solid fundamentals, consider these names: AMD, for its revenue growth and the recent acquisition of Xilinx; Fortinet, for its industry-best margins; and Paycom, for its long-term growth prospects.
