For more than a decade, growth stocks were the fuel that helped propel the major indexes, including the Nasdaq Composite and Nasdaq 100 -- an index comprised of the 100 largest nonfinancial stocks by market cap on the Nasdaq exchange -- to new highs. But in 2022, the Nasdaq 100 has acted as a monumental drag on the broader market.
While there's no telling precisely when and where the Nasdaq 100 will bottom out, history is quite clear that winning businesses tend to keep winning over long periods -- and the Nasdaq 100 is packed with winners. What follows are three Nasdaq 100 stocks that represent surefire end-of-year buys with the index well off of its all-time high.
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Meta Platforms
The first surefire buy within the Nasdaq 100 is FAANG stock Meta Platforms (META -1.12%). Meta is the social media giant that owns Facebook, WhatsApp, and Instagram.
The wall of worry surrounding Meta has to do with two things: economic weakness and the company's aggressive metaverse spending. In terms of the former, fears of a U.S. recession are building. That's concerning, given that more than 98% of Meta's revenue is derived from advertising. Ad spending usually tapers off quickly during a recession.
The other worry is the billions of dollars being spent on metaverse products and virtual-world development. Reality Labs, the company's metaverse operating segment, has seen its nine-month loss in 2022 balloon to $9.4 billion from $6.9 billion in the comparable period for 2021. Additionally, CEO Mark Zuckerberg has pledged to continue spending aggressively on metaverse innovations moving forward, which removes the possibility of this operating segment producing smaller losses anytime soon.
Despite these headwinds, a viable argument can be made that Meta Platforms is the best deal in the entire Nasdaq 100 for long-term investors.
Although the company's spending on the metaverse signals a clear long-term shift in its vision, it's important to recognize just how valuable its social media assets truly are. Facebook is still far and away the most-visited social site on the planet. Further, on a combined basis, Facebook, Facebook Messenger, WhatsApp, and Instagram brought in more than 3.7 billion monthly active users during the third quarter. There simply isn't an alternative to Facebook that's going to give advertisers the ability to reach more eyeballs. When the next bull market takes shape, Meta's superior ad-pricing power will be a major cash flow driver once again.
In addition, Meta hasn't even fully monetized all of its core assets. Of the more than $82 billion in ad revenue brought in this year through September, virtually all of it comes from Facebook and Instagram. If the company does decide to monetize WhatsApp or Facebook Messenger, it would undoubtedly boost its cash flow.
Lastly, Meta Platforms has the capital and cash flow to merit risk-taking. With $31.9 billion in net cash and marketable securities on its balance sheet and a history of recurring profitability, the company has the luxury of investing in metaverse innovations to possibly become an on-ramp to this multitrillion-dollar opportunity.
Valued at less than 16 times Wall Street's forward-year earnings, and forecast to generate almost $21 in cash flow per share in 2024, Meta Platforms is a plain-as-day bargain.
Walgreens Boots Alliance
For value investors, the second Nasdaq 100 stock that's a surefire end-of-year buy is pharmacy chain Walgreens Boots Alliance (WBA 0.38%).
Peruse the healthcare sector, and you'll notice that most stocks have held up well. That's because healthcare stocks are defensive. No matter how poorly the stock market or economy perform, people still get sick and require medical care, whether they need prescription drugs, medical devices, or a variety of healthcare services.
Walgreens Boots Alliance hasn't been as lucky. The initial stage of the COVID-19 pandemic led to lockdowns that substantially reduced foot traffic into its stores. Since Walgreens generates most of its revenue from its physical locations, its stock was walloped. Thankfully, there looks to be a rock-solid prescription for this poor performance: patience.
For years, Walgreens has been putting a multipoint plan of action into motion that's designed to improve its financial flexibility, lift its organic growth rate, and encourage repeat visits. The company is well on its way to achieving these goals.
In terms of reshaping its balance sheet, Walgreens reduced its operating expenses by north of $2 billion a full year ahead of schedule, and it sold off its drug wholesale business for $6.5 billion to AmerisourceBergen. More financial flexibility on its balance sheet means more opportunity to deploy capital in higher-growth segments.
One such area where the company hasn't been shy about spending is digital sales. The pandemic taught management the importance of having an easy-to-navigate online sales portal, as well as expanding drive-thru pickup for goods and prescription drugs. Though its physical stores continue to account for the bulk of its sales, digital revenue is consistently growing by a double-digit percentage.
Another fast-growing initiative that has the potential to really boost customer loyalty is the opening of colocated, full-service health clinics in partnership with VillageMD. The duo opened 152 of these differentiated clinics through Aug. 31, with the goal of reaching 1,000 grassroots-oriented health clinics by the end of 2027.
With Walgreens Boots Alliance making all the right moves and increasing its base annual dividend for 47 consecutive years, it's a no-brainer buy at close to 8 times forward-year earnings.
Image source: Getty Images.
Baidu
The third Nasdaq 100 stock that's a surefire end-of-year buy is China-based internet search giant Baidu (BIDU 0.55%).
To keep with the theme of this list, there are clear reasons for Baidu's recent struggles. But instead of recessionary fears being the primary culprit for Baidu, it's China's zero-COVID strategy. China's piecemeal efforts to contain COVID-19 have resulted in sporadic lockdowns that hurt supply chains and caused economic activity in select provinces to grind to a near-halt. Ultimately, this has driven down advertising demand for Baidu's internet search engine.
A secondary concern for Baidu has been the possibility that it and other China-based companies could be booted off the major U.S. stock exchanges. Specifically, U.S. regulators want added financial transparency (i.e., the ability to audit three years' worth of company financials) from a growing number of China stocks.
Although China stocks do come with a bit of added risk, this temporary weakness is well worth it to buy into an industry leader like Baidu on the cheap.
For more than a decade, Baidu's internet search engine has been its cash cow. Due to restrictive information oversight, search engine competition has been somewhat stifled. This has helped the company maintain a dominant role. Over the past 12 months, Baidu's share of the internet search market in China has ranged from 60% to 87%. This makes it the logical go-to for Chinese advertisers wanting to reach consumers.
However, internet search is far from the only reason to be excited about Baidu's prospects. Baidu's artificial intelligence (AI)-powered cloud services segment and autonomous driving subsidiary Apollo Go fueled a 25% year-over-year sales increase in its nonmarketing operations during the third quarter. Cloud spending is still in its very early stages, and Apollo Go is the leading autonomous vehicle company in the world.
Baidu is generating a boatload of cash from its operations, sitting on nearly $7.8 billion in cash and cash equivalents (not counting restricted cash). That's plenty of runway for continued investment in innovation while raking in ongoing profits from its leading internet search operations. At a multiple of 12 times Wall Street's consensus earnings for 2023, long-term investors would struggle to find a more attractive deal among growth stocks.
