Over the past 30 years, the growth-oriented Nasdaq 100 index has far outstripped the gains made by the more staid Dow Jones Industrial Average and S&P 500. Populated with the 100 largest nonfinancial stocks on the Nasdaq, the index has returned 4,000% over the last three decades, compared to approximate 900% gains in the same time period by its brethren.
Even over the last three-, five-, and 10-year periods, the tech growth stock-laden index has turned in outsized performance. But investors can still find bargains, particularly now, because so far this year, the Nasdaq 100 has moved into correction territory. The index is down 12.5% in 2022, versus a 6% and 7% drop by the Dow and S&P 500, respectively.
In March, investors can feel confident by buying this pair of Nasdaq 100 stocks.
1. Meta Platforms
Despite not believing the metaverse is going to be the game-changing and life-altering development many insist, I still think Facebook parent Meta Platforms (META -0.71%) is not a stock you should bet against. Yet, that's what the market seems to be doing.
Shares of Meta have lost 38% of their value in 2022 after the company reported its first decline in active users in 18 years and saying its investments in virtual reality would weigh on cash flows for the next few years. Yet it retains massive user bases across Facebook, Instagram, and WhatsApp. In addition, Meta's strategy for prioritizing engagement over monetization on its Reels short-form video platform should pay off in the long run as it takes on TikTok, even if it results in a short-term hit to revenue.
Morgan Stanley analyst Brian Nowak thinks Reels can achieve 15% engagement by the end of next year, up from 6% today, and can still bring in $12.6 billion in advertising, although much of it will be paid out to creators. He sees it as serving as a near-term drag, but there is "direct evidence that [Facebook] will indeed successfully monetize Reels."
Bloomberg also sees the metaverse turning into an $800 billion market by 2024, and Meta is developing the resources, software, and hardware to utilize it. It will soon break out results from its Reality Labs division, and its Oculus VR app was the No. 1 mobile download during the holidays.
Meta trades at just 14 times next year's earnings and the free cash flow it produces, making its stock one investors should be buying now.
Chipmaker Nvidia (NVDA -0.01%) also has its hand in the metaverse, but it is in gaming and data centers where its real business takes place. Its stock also took a tumble after releasing earnings, but the response seems disconnected from reality.
Gaming is its biggest revenue generator and is still growing at a 37% clip, producing $3.4 billion last quarter, but data centers are poised to overtake gaming soon. The segment saw a 71% surge in sales. With a presence in autonomous vehicles, cryptocurrency, industrial automation, healthcare, and robotics, Nvidia is establishing itself as a leader across multiple channels.
Nvidia has massive tailwinds behind it as demand for its chips continues to swell, growing at better than 30% for four straight quarters and causing it to exceed even internal revenue growth projections.
The semiconductor stock is down 18% year to date, and though on traditional metrics such as price-to-earnings, price-to-sales, and price-to-free cash flow Nvidia does not look cheap (it looks downright expensive, to be honest), its dominant industry position demands it carry a premium.
Wall Street is still looking for revenue to triple to $70 billion by 2027, and with analysts having as much as a $400 per share one-year price target on its stock -- or nearly 70% upside from where it currently trades -- Nvidia is a stock that ought to be bought hand over fist today.