The tech sector has left a bad taste in the mouths of investors this year as a 13-year-long bull run came to an unceremonious end. The market began rotating out of previously high-flying tech stocks into more defensive consumer-oriented ones starting last November, and the tech-heavy Nasdaq 100 has lost more than 25% in 2022. It's been in official bear market territory since at least May.
Although the index mustered a few rallies since then, investors remain leery about any sustained buying of cheap tech stocks because of valid concerns they have about the direction the economy is heading. Still, that could be a mistake.
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You might not get the absolute lowest price buying now, but that's a game of luck, not skill, and waiting for a perfect price, and missing out on when the market does turn will severely handicap your returns. Over the past 20 years through the end of 2021, the stock market went up an average of 9.5% a year, but missing just the 10 best days meant your returns would be nearly cut in half to only 5.3% a year.
Many quality tech companies are now trading at prices and valuations not seen in years. The following pair of growth tech stocks also pay dividends that can help soften the blow of any further market downturn while setting up patient investors for fabulous returns in the years to come.
Intel
The market really doesn't like semiconductor giant Intel (INTC 0.64%) these days, pummeling its stock 43% so far this year as it struggles to bring new chip technology to market. It is jointly investing with Brookfield Infrastructure Partners up to $30 billion in new fabrication facilities. And spending upward of $100 billion on new fabs globally -- which could consume much of Intel's available free cash flow until they come online -- may be worrying the market.
The recent inflation report didn't help matters, either, as prices for just about everything other than a gallon of gas were much higher than expected last month. That means the Federal Reserve is going to keep its foot on the interest rate pedal, likely hiking rates another 75 basis points when it meets next. Because higher interest rates raise the cost of capital for tech companies that use new financing to grow, it creates more uncertainty in the tech space.
Intel, though, is trading at multiples of earnings and sales not seen in more than 15 years. This is too cheap to ignore. Just the facilities it is building with Brookfield are expected to produce a cumulative benefit of $15 billion to free cash flow over the next few years. With a dividend yielding 5% at recent prices, this semiconductor stock should be considered one to buy and hold for years.
Nvidia
Nvidia (NVDA -3.33%) isn't a stock you're going to find on many most-loved lists this year, either, as its stock is having an even worse go of it, down 55% this year and off 62% from the highs it hit last November.
Like Intel, the gaming chipmaker is suffering from the general economic malaise and persistent inflation reports, but also from the world of cryptocurrencies, where there were worries about what effect Ethereum's recently successful Merge would have on sales.
Nvidia chips were the ones often used to do the validation work during its proof-of-work phase, but the Merge will now have stakeholders performing proof-of-stake validation, and Nvidia chips tend not to be the ones used for that purpose. It's why the chipmaker's gaming business has been so robust for so long. People weren't only playing video games, many were often validating Ethereum transactions.
Yet Nvidia still has a monumental runway of growth in front of it from its data center business, which recently surpassed gaming as the biggest revenue generator for the company. Second-quarter segment revenue hit $3.8 billion, a 61% increase from last year. And because businesses will necessarily keep migrating their data to the cloud and will need data centers to warehouse it, Nvidia will see sales continue their robust climb.
Nvidia's dividend is admittedly modest with a yield of just 0.1%, and its multiples are not as historically discounted as Intel's, but with Wall Street still expecting the chipmaker to grow earnings 23% annually over the next five years, the stock is discounted enough to make it one to buy and hold for the long term.
