If you've never invested in the stock market before, the steep declines lately might be making you hesitant to dive in. The Nasdaq-100 index, which is home to 101 of the largest technology stocks, plunged 33% in 2022.
But here's why that's actually good news for first-time investors. Some of the largest technology companies have traded at lofty valuations over the last two years, and now there's an opportunity to buy their shares at very attractive discounts.
After all, 2023 is likely to be a positive year for the market because the Nasdaq-100 index has only fallen in consecutive years once in its history (which dates back to 1986), and that was during the tech crash between 2000 and 2002.
So, if you're considering making your first investment in the stock market, this might actually be the ideal time. However, it's key to take a long-term focus with a five-to-10-year time horizon and to buy companies with proven track records of success for the best results.
Here's a great trio to get you started.
1. Tesla operates in multiple industries of the future
Tesla (TSLA -0.89%) is the world's leading producer of electric vehicles (EVs), but let's start by acknowledging the elephant in the room: Its stock has crashed 72% from its all-time high. It has been under heavy scrutiny lately because its CEO, Elon Musk, has been busy running Twitter, the social media giant he purchased in a blockbuster $44 billion deal last year.
The weak economy is also hurting demand for Tesla's cars, and rising competition in the EV industry is making some investors nervous. But the economic situation will resolve with time, and Tesla continues to grow beyond its roots as a carmaker. It's building a lucrative software business to power self-driving vehicles, a residential solar business, and even an emerging robotics segment.
But its car business has been a growth machine. Tesla was producing vehicles at an annual rate of 20,000 units during 2012, and it delivered 1.31 million cars during 2022. That's an eye-popping increase in just a 10-year stretch, but the future might be even brighter because Musk thinks Tesla could be making 20 million cars per year by 2030.
Thanks to the steep decline in Tesla stock, first-time investors get the chance to buy it at a forward price-to-earnings (P/E) multiple of just 20.7 (based on projected 2023 earnings), which is the cheapest it has ever been. It's even cheaper than the Nasdaq-100 index, which trades at a forward multiple of 21.9
Looking back 10 years from now, today's price might have been a steal.
2. Meta Platforms is a social media juggernaut, and its stock is cheaper than ever
Meta Platforms (META -4.11%) owns Facebook, Instagram, and WhatsApp. Since 3.7 billion people use those platforms every single month, I'm going to bet you've probably come across them before.
Meta helped pioneer social media as a commercial business by selling advertising spots to businesses, and it has grown its sales more than 20-fold over the last decade, from $5 billion in 2012 to an estimated $116 billion in 2022 (once its official results are in the books). But that $116 billion number would actually be a small drop from its 2021 result, which has made investors a little pessimistic.
Meta faced a series of challenges lately. ByteDance's TikTok has become a fierce competitive threat, and the weak economy has forced businesses to trim their marketing budgets, which directly hits Meta's revenue. Last but not least, the company invested billions on its metaverse (virtual reality) project, which is unlikely to generate meaningful revenue for years, so it's eating up some of the profits the rest of its business is making.
But I don't think any of those issues will last long. Meta has batted back many competitors over the years, and the economy is likely to improve over time. Plus, the company has already started trimming costs to improve its bottom line.
That's why now is a great time to buy Meta Platforms stock for the long term. It trades at a 66% discount to its all-time high, and its price-to-earnings multiple of 14 is near the cheapest in its history since listing publicly.
3. Microsoft is one of the safest bets in the tech sector
Technology is a fast-moving industry, so not many companies can say they've been at the top of the game for more than three decades, but Microsoft (MSFT -1.42%) can. In fact, it's arguably more successful now than ever thanks to its relentless appetite for expansion into new areas.
Sure, its Windows operating system and Office 365 document suite are still used by billions of people worldwide, but they're no longer the most exciting parts of the business. That title goes to its cloud-services platform, Azure, which offers hundreds of solutions to businesses to help them migrate their operations online. Whether they need advanced artificial intelligence tools or simple data storage, Azure has them covered.
What makes that exciting? Well, according to an estimate by Grand View Research, the cloud is set to grow into a $1.5 trillion annual opportunity by 2030. Azure is ranked second in the industry behind Amazon Web Services (AWS), so it's attacking that sizable market from a position of strength.
Microsoft has also come a long way on the hardware front. It produces popular notebook computers and tablets under its Surface brand, and its Xbox gaming console is globally recognized.
Microsoft stock is a great long-term bet for investors of all experience levels, and it's trading at a 33% discount to its all-time high right now, which is an opportunity that doesn't come around often, so there's no time like the present to buy in.
