A strange thing happens when the market takes a downward turn. Many amateur investors take their ball and go home. According to a survey by Bankrate.com, only 18% of adults in the U.S. will invest more in 2022 than they did in 2021.
But what does this mean? It means that the vast majority of individual investors bought more when the market was high and are now either selling or not buying when it is low. Higher dividend yield opportunities are also lost. Meanwhile, hedge fund managers wait to pounce on bargain prices. Insider buying is also up, showing that many company executives believe their stocks are undervalued.
Bankrate.com did have some encouraging news. Overall, younger investors like those in Gen-Z were planning to add to their investments in 2022. Since they have a long timeline, adding incrementally during a down market is historically a winning strategy. It's nearly impossible to time the market bottom, and the market could go lower. This is why an approach like dollar-cost averaging, or incremental purchasing, is so important. So is having a diversified portfolio to mitigate risk.
With this in mind, let's look at some diverse and compelling tech options.
Alphabet
Macroeconomic concerns have brought Alphabet's (GOOG 0.87%)(GOOGL 0.78%) stock price down more than 20% in 2022. However, the company has several irons in the fire and will likely outperform once the market turns bullish. Alphabet makes most of its money from advertising, and there are concerns that advertising spending will drop if we have a recession. That concern could be overblown. Successful companies know that they must continue to advertise heavily to stay ahead of the competition no matter the economic conditions.
NASDAQ: GOOGL
Key Data Points
Advertising sales in first quarter of 2022 were up 22% year over year, led by Google Search, which gained 24% year over year to reach $39.6 billion. The company also has a massive secular opportunity with Google Cloud. Cloud infrastructure needs are exploding globally, and Alphabet is the third leading provider behind only Amazon and Microsoft.
Alphabet has barely scratched the service of its cloud potential. In 2021, Google Cloud generated $19.2 billion in sales for Alphabet, more than double the $8.9 billion generated in 2019. The Google Cloud segment isn't profitable, while Amazon's AWS segment has an operating margin above 30%. Google Cloud could significantly boost Alphabet's earnings per share if management can scale it to profitability as Amazon has done. The rise in Google Cloud revenue is pictured below.
Data source: Alphabet. Chart by author.
The stock is set to split 20 for 1 in July of 2022. A stock split has no direct effect on the stock's underlying value, but trading is often ticks up around these events. Alphabet is currently trading at a price-to-earnings (P/E) ratio lower than it has traded in several years, indicating an opportunity for long-term investors.
Verizon Communications
While Alphabet is a growth stock, Verizon Communications (VZ 0.12%) provides shareholders with an excellent source of income. The current dividend yield is near 5%, which provides investors with some stability and semi-regular income in the current, tumultuous climate.
NYSE: VZ
Key Data Points
Image source: Getty Images.
Verizon has steady revenue and is highly profitable, although it has struggled to grow materially in recent years. Because of this, the stock price has struggled to find traction. This could be about to change. Verizon has introduced a network-as-a-service (NaaS) strategy to capitalize on the proliferation of 5G and mobile edge computing. Verizon expects its 5G network to be available to 175 million people by the end of this year. Management forecasts annual growth of 4% after 2024. Meanwhile, investors can enjoy the rising dividend.
Intuitive Surgical
Rounding out these diversified technology picks is a tremendously profitable company that provides an innovative robotic-assisted surgical platform. Traditional surgery is an invasive process that puts the body under tremendous strain. For instance, conventional open-heart procedures require the doctor to open the patient's ribcage to gain access. Using the da Vinci Surgical System produced by Intuitive Surgical (ISRG 1.14%), doctors can perform several common heart procedures with just small incisions. Along with cardiac procedures, the system is used for numerous other surgery types, and over 10 million procedures have been performed with this system.
NASDAQ: ISRG
Key Data Points
As the global leader in robotic surgery, Intuitive Surgical is highly profitable. The company uses a razor-and-blades model to generate 70% of its revenue from recurring sources. This means that as the market becomes saturated with the da Vinci platform, Intuitive will make more money. This is important as there are already 6,920 systems running worldwide. The company's recurring revenue comes from the instruments, accessories, and services that the machines require. Further, as our population continues to age, surgical demand will grow.
After a tough 2020, Intuitive's revenue came roaring back in 2021 to reach $5.7 billion on 31% growth. Intuitive also has an incredible stockpile of cash and short-term investments and no long-term debt. In the last report, there was $8.4 billion in cash, equivalents, and investments on hand -- or more than 10% of the company's market cap. The company's stock has taken a hit along with the market in 2022 and now trades at a valuation not seen since the March 2020 crash, as shown below.
ISRG EV to EBITDA data by YCharts
It is essential to maintain a diversified portfolio of recession-resistant companies during market uncertainty. Each of the companies above brings something unique to an investment portfolio, and all have the potential to outperform the market from here.
