In times of market stress, even the best businesses can take it on the chin. And there's considerable uncertainty for both the economy and individual stocks today. However, even if we're entering a "hurricane," as JPMorgan & Chase CEO Jamie Dimon recently put it, eventually, the storm will pass.
That means investors should look to resilient businesses that can weather a potential economic "storm," while coming out stronger on the other side. In that light, two of the most dominant businesses in their fields, Meta Platforms (META -0.52%) and Qualcomm (QCOM 1.41%), look extremely cheap today.
Meta faces numerous headwinds, but its competitive position is intact
While Meta Platforms looks enticingly cheap today at just 14.3 times trailing earnings, let's be realistic: The company is facing numerous headwinds at the moment. First, the company is battling new privacy protocols for iOS users, which is affecting ad targeting. Rival Snap also recently pre-announced worse-than-expected results last month, perhaps foreshadowing a difficult digital ad market this year, sending all social media stocks into a spiral.
Meanwhile, Meta is burning billions of dollars every quarter on an ambitious metaverse project that may or may not pay off for years. And the company is losing a key executive in Chief Operating Officer Sheryl Sandberg, who announced on Wednesday she would be stepping down from her post after 14 years.
All of these headwinds are the reason investors are now able to buy Meta at such a low valuation. True, earnings are likely to decrease this year as a tough ad market coincides with spending on the metaverse. Yet looking out long term, Meta's core Facebook and Instagram ecosystems appear resilient, as they each benefit from powerful network effects.
Despite a drop in ad prices, Meta's universe of apps still grew both monthly and daily active users by 6% last quarter. That shows Meta's platforms still provide value and should similarly attract advertisers going forward. Meanwhile, Meta also has a fortress balance sheet, with nearly $44 billion in cash as of the end of last quarter.
Management also seems to be getting the message on its profligate spending. In May, Meta announced cutbacks and delayed projects within Reality Labs, along with a hiring freeze at the Facebook division. And Meta will also be lapping the worst of the iOS changes by the third quarter of this year, so revenue growth could accelerate.
Still, next-quarter's earnings could be somewhat ugly. Yet with the stock at these low levels and management repurchasing shares regularly, now looks like a good time for long-term investors to establish a position in this dominant and highly profitable tech stock.
Image source: Getty Images.
Qualcomm's CEO maintains it's not just a phone company anymore
If we're talking about dominant positions, Qualcomm (QCOM 1.41%) has a big one in the mobile-handset space. In fact, Qualcomm owns key patents for mobile technology that connects phones to a cellular network. That enables it to collect high-margin royalties on every handset in the world.
But Qualcomm isn't just raking in licensing fees -- it's also gaining share in mobile processors, which were up 56% last quarter. New design wins for Samsung's premium Galaxy 5G phones helped propel these great results.
Not only is Qualcomm executing well in its core mobile markets, but it's also growing several non-handset businesses, capitalizing on general connectivity across 5G radios, Internet of Things connected devices, and adaptive driver assistance (ADAS) platforms for connected cars. These non-handset businesses made up more than one-third of Qualcomm's chip revenue last quarter, with radio frequency front-end chips up 28%, automotive up 41%, and Internet of Things devices up an eye-opening 61%.
Due to macroeconomic fears, Qualcomm only trades at 14.3 times earnings. With increasing 5G penetration and China's economy slowing, investors clearly believe revenue will slow in the future. And yet, CEO Cristiano Amon, who has only been on the job for one year, has been very vocal that the market is misreading Qualcomm with that lowly valuation. Not only should handsets remain stronger than feared, but investors appear to be ignoring the company's broader non-handset connected device platforms.
I tend to agree. The 5G transition should not only increase processor prices for Qualcomm, as we're seeing, but 5G also opens up a whole world of automated and connected devices across auto and industrial applications. That could lead to reinforcing growth avenues for the chip giant. As long as these devices are connected with cellular or Wi-Fi technology, Qualcomm should benefit.
Meanwhile, with its high margins, Qualcomm can buy back lots of stock, raise its dividend, and make new acquisitions all at the same time. Long-term investors would do well to pick up shares, as long as the discount lasts.
