With the Nasdaq Composite down 29% year to date, investors in some of the world's top stocks have had little to cheer about in 2022. But for investors with a long-term perspective, this bear market drop offers a chance to initiate or build positions in some of the world's most innovative companies at discounted prices and prosper from these choices in the long run.
Let's take a closer look at three top Nasdaq-listed stocks that look like a steal at today's prices.
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1. Texas Instruments
While it may not be as exciting as some of the more high-profile stocks that many investors tend to call to mind when they hear reference to the Nasdaq, there's nothing boring about Texas Instruments (TXN 0.37%). The Texas-based company makes semiconductors that are crucial components of a range of products, including automobiles and data centers. The stock has not escaped the price drop of its tech sector counterparts, but its 20% decline year to date is not anywhere as severe by comparison. It also means that shares of Texas Instruments now trade at a modest valuation of just 17 times earnings. Part of the reason its drop has been tempered is that Texas Instruments pays a generous dividend, and shares currently yield over 3%.
The 71-year-old company has weathered plenty of downturns before. It has increased its dividend for 18 straight years at an impressive compound annual growth rate (CAGR) of 25%, and it has also consistently returned capital to shareholders by repurchasing shares. In fact, the company has reduced its share count by nearly half since 2004.
Longtime CEO Richard Templeton says that the best way to judge a company over time is by looking at how it is growing free cash flow per share, and his company is doing an exemplary job of this -- Texas Instruments has increased free cash flow per share at a 12% annualized rate since the start of his tenure in 2004.
Texas Instruments is a rock-solid company and this (likely temporary) 20% decline looks like nothing more than a good opportunity to buy a reasonably valued blue-chip company with a deep commitment to creating value for shareholders.
2. Alphabet
Shares of Google's parent company Alphabet (GOOG -0.39%) (GOOGL -0.51%) are down nearly 25% from their 52-week high and now trade at a forward price-to-earnings multiple of just 20.2.
When pondering long-term investment ideas, I often think of Motley Fool co-founder David Gardner's "snap" test. It asks: "What would the world be like if you snapped your fingers and the company was just ... gone?" In the case of Google, people absolutely would notice its absence. I use Google products multiple times a day without even really thinking about it, whether it's to collaborate with a colleague using Google Documents, using GMail to keep in touch via email, listening to music on YouTube, or even using Google Drive to save family vacation photos. How about using Google's search engine to find the quick answer to a question or the location of a new restaurant?
Alphabet is clearly one of the most indispensable companies in the world, and it is also one of the most innovative, working on applications like machine learning and autonomous driving. Despite all of this, Google's price-to-earnings multiple of 20.4 is lower than that of legacy fast-food companies like McDonald's and Domino's Pizza. This is no knock on McDonald's or Domino's as they are great companies, but it just highlights how much of a bargain Google is right now.
Furthermore, valuation is expected to come down to just 17 times next year's earnings, and the stock has a major catalyst ahead with its upcoming stock split which will make it more accessible to retail investors.
3. Starbucks
Not all Nasdaq stocks have to fit the high-tech archetype -- although there is nothing low-tech about Starbucks (SBUX -0.08%), with over 26 million members using its mobile app. Shares of the global coffee giant are down roughly 34% year to date as it has struggled with lockdowns in China, rising inflation, and tensions with workers who want to unionize.
However, much of China has reopened, and perhaps no U.S. company is better positioned to benefit from the easing of pandemic-related restrictions there than Starbucks. The company has 5,400 locations in the country, and interim CEO Howard Schultz envisions it eventually becoming a bigger market for the company than the United States (with its 15,436 stores). Meanwhile, the company's most recent quarter was so strong that global sales increased 7% even when taking China's 23% decline into account. Schultz described demand in North America (where revenue increased 12%) as "relentless," so now that China is coming back, the company should be excelling on all fronts.
After the decline, shares of Starbucks now trade at 20.5 times earnings and sport a 2.5% dividend yield.
The Nasdaq and its components have had a challenging year. But after years of strong returns, the present correction is a chance for investors to buy into the index's innovative and world-class companies at the types of discounted prices we haven't seen in a long time. Taking a long-term outlook and buying shares like these can pay off over the long run when the market rebounds.
