Last year was a wake-up call for tech investors.
After years of enjoying market-beating returns, tech investors saw the Nasdaq plunge 33% in 2022, significantly underperforming the S&P 500 and the Dow Jones Industrial Average.
Even the mightiest tech stocks tumbled as rising interest rates reeled in valuations in the sector, investors realized that pandemic-fueled growth would end, and fears of a recession swept the market.
If the volatility of 2022 has led you to reassess your investments, you may want to take a look at Accenture (ACN 3.82%) and Intuit (INTU 4.20%). After all, these stocks have a history of outperforming the S&P 500 -- and with less volatility than the typical tech stock. Here's a closer look at why each holds promise.
1. Accenture is making a mint from tech consulting
Accenture has grown to a market cap of nearly $200 billion thanks to steady growth in its consulting business and an aggressive acquisition strategy. Typically, Accenture purchases dozens of smaller consulting firms each year, and it has even announced two acquisitions this month. The company now has more than 700,000 employees around the world.
While investors might associate consulting with formulating high-level strategy, businesses like Accenture primarily focus on helping companies deploy software and other kinds of technology, and that has been a lucrative business to be in.
As you can see from the chart below, Accenture's stock has a long track record of outperforming the S&P 500.
With its exposure to business spending, Accenture isn't recession-proof, but its performance is closely tied to overall economic growth, meaning it should only be as volatile as the broader economy.
Its most recent earnings report showed the company continues to deliver strong results, with a 15% increase in revenue in constant currency and double-digit growth in all five of its segments. It also posted an operating margin of 16.5%, showing its wide profit margin.
NYSE: ACN
Key Data Points
Accenture's bookings in the quarter indicated that growth was slowing, in line with headwinds in the macro-level economy. However, Accenture now trades at a price-to-earnings ratio of 25, a reasonable valuation for a diversified tech services business with a track record of consistently outperforming the S&P 500.
2. Intuit is a recession-resistant software company
Like Accenture, Intuit also has a long history of outperforming the S&P 500 and delivering steady returns, as the chart below shows.
Nearly all of Intuit's revenue comes from Quickbooks accounting software and Turbotax tax prep software. Combined, those two businesses made up 82% of its revenue in its most recent fiscal year. Turbotax offers the company a unique strength because spending on tax software is essentially recession-proof; consumers need to pay taxes in good times and bad.
That and the scalability of its top software programs have helped drive the company's success: Intuit reported an operating margin of 20% in its most recent fiscal year.
NASDAQ: INTU
Key Data Points
The company delivered strong growth in its fiscal first quarter, with revenue up 29%, including a benefit of 13 percentage points from the acquisition of Mailchimp. Intuit acknowledged macro headwinds in its Credit Karma business, which generates revenue from consumers taking out credit cards and loans, but the rest of the company looks poised for growth, even in a difficult environment. It expects revenue growth between 10% and 12% and adjusted earnings-per-share growth between 15% and 17%. Revenue in its largest segment -- small business and self-employed, which is primarily made up of Quickbooks -- is expected to increase between 19% and 20% as small business formation remains at historically high levels, despite macro headwinds.
Based on forward earnings estimates, the stock trades at a P/E ratio of 28. While that may seem expensive in today's market, Intuit has been a reliable growth company for years and looks poised to deliver another year of profit growth even in a recessionary climate.
