The market downdraft continues to pull down the tech sector. The Dow Jones Industrial Average plunged more than 1,000 points the other day, a 1.4% drop, but it caused the tech-laden Nasdaq 100 to plummet over 2%, putting virtually every single one of its components in the red. After a 30-year bull run that saw the Nasdaq 100 index gain nearly 4,000%, the tech benchmark could be heading for a deeper run south.
The economy itself may be primed for a recession. The Federal Reserve made the first of what it promises could be three big half-percentage-point interest hikes in the hopes of taming inflation, and the market is reportedly tumbling over fear it won't be enough.
That fear is probably not unfounded. St. Louis Fed president James Bullard said it's a "fantasy" to believe the worst inflation the country has experienced in 40 years is going to be cured by half-measures, indicating aggressive interest rate hikes will be needed, even if it causes economic growth to stop. With the country's gross domestic product contracting 1.4% in the first quarter, that time may be at hand.
The simple solution would be to pull your money out of the market and wait till it all blows over, but that's not a strategy that would serve you well over the long haul. Because stock market corrections are invariably followed by bull markets, missing the upturn means you'll miss the gains. And since it's never clear when the market is going to go up (just like now, people are still trying to figure out if it's really going to head down), the odds are high you will miss the bottom.
Buying a basket of good companies and committing to holding them for many years is the surest way to generate market-beating returns, even among battered tech stocks (maybe especially in battered tech stocks). The following two tech stocks are an excellent place to begin.
There is arguably no better tech stock to hold long-term than Nvidia (NVDA 0.95%), which is poised to capitalize on all the major trends in the sector. It has its fingers in gaming, data centers, artificial intelligence, automobiles, and cryptocurrencies. Its powerful processors are used in everything from weather simulation and gene sequencing to deep learning and robotics.
It was just hit by the SEC with a $5.5 million fine for underplaying the role crypto mining played in its gaming division sales in 2018, since miners were converting its gaming processors into crypto mining units and Nvidia failed to disclose the boost that provided.
Since then, however, the chipmaker has halved the hash rate of its GeForce RTX 3060 processors, limiting their efficiency, and developed a separate crypto-focused chip, the CMP, or Cryptocurrency Mining Processor. It ended up generating $550 million in CMP revenue last year, though that's volatile and depends on what's happening in the crypto markets.
Gaming and data centers are the chipmaker's two largest segments, with a combined $23 billion in sales, some 60% more than the year before. Both segments are still rapidly growing, and will be for years to come.
Nvidia's stock is down 36% year-to-date, and analysts see it growing earnings at a near-31% rate every year for the next five years. While it will experience hiccups from time to time, it's a stock that should be a long-term keeper.
Verizon (VZ -0.43%) stock is not down as much as Nvidia's in 2022 (it's off about 8% at this writing), and it also has superior long-term potential. The telecom stock recently suffered one of its worst weeks in recent memory after its earnings report showed a continued loss of subscribers, causing it to suggest full-year adjusted earnings will come in at the low end of its prior guidance.
Yet there's a lot to be optimistic about. Customer losses were significantly lower than expected, just 36,000 postpaid wireless phone subscribers versus analyst expectations of a 75,000 loss, and the rollout of 5G network ensures it will enjoy profitable growth for the long term.
Verizon owns the most spectrum in the sub-6 gigahertz range, where 5G will initially be deployed, and it is the leader in millimeter-wave spectrum, the destination to which the industry is ultimately heading. It's been years since network speeds were increased, and the 5G deployment promises significant upside.
Verizon is no longer a growth stock in the same way Nvidia is. With 91.4 million postpaid phone connections, 23.8 million prepaid connections, and $134 billion in annual sales, the telecom is the largest wireless provider in the U.S. It's hard to get the giddy-up going again in a business that big. But what it is is a steady grower, and one that pays a dividend that is currently yielding 5.45% annually.
It's made a payout every year since going public in 2000. Before that it traded as Bell Atlantic, which was one of the so-called "Baby Bells" resulting from the breakup of AT&T, and dividend payments under that banner have stretched back for well more than 100 years. It's raised the dividend every year since 2006.
It's likely going to be around for at least another 100 years, and should be a staple of an investor's buy-and-hold portfolio.