Value investors tend to seek stability. They prefer mature companies with relatively low valuations even if they do not offer spectacular growth rates. However, the bear market has made some solid, faster-growing stocks available at a significant discount that has taken them into value stock territory.
If you have $5,000 to put to work, now is probably an opportune time to consider positions in Alphabet (GOOGL 2.98%) (GOOG 2.59%), Taiwan Semiconductor (TSMC) (TSM 1.86%), and Qualcomm (QCOM +8.53%).
Alphabet
Alphabet is one of the most stable tech companies in existence. For one, its $116 billion in liquidity gives the business considerable optionality.
Bolstered by its Google search dominance and other applications, it pioneered a highly profitable digital advertising business. And as its growth has slowed, it has turned to Google Cloud and dozens of other businesses that could potentially help take up the slack.
Despite these attributes, a slowdown in ad spending has caused Alphabet stock to drop by about 40% from its high, taking its multiple to just 18 times earnings.
NASDAQ: GOOG
Key Data Points
Admittedly, growth has decelerated. The 41% annual revenue growth in 2021 slowed to just 14% in the first three quarters of 2022. Additionally, net income fell 16% from year-ago levels in the first nine months of 2022 to $46 billion. Costs and expenses increased faster than revenue, and equity losses also weighed on the bottom line.
Still, the digital ad market should improve with the economy. And thanks to the 20-for-1 stock split last year, investors can buy 18 Alphabet shares with one-third of a $5,000 budget. Given its valuation and future growth prospects, such a purchase is likely to deliver significant returns at a low price to shareholders.
Taiwan Semiconductor
Taiwan Semiconductor -- or TSMC, as it's often called -- dominates chip manufacturing, claiming about 56% of the market, according to TrendForce. Companies such as Apple, Qualcomm, and former industry leader Intel actually depend on it to produce the most advanced chips.
In November, the stock received a significant boost following news that Warren Buffett's Berkshire Hathaway bought 60 million shares. However, it also remains a value stock despite its recent popularity, trading at just 14 times earnings.
Before the Buffett investment, TSMC had become cheaper than it had been in years amid a chip industry slowdown. And China's threat to invade Taiwan, where most of its manufacturing takes place, turned many investors away from the stock.
NYSE: TSM
Key Data Points
But despite that slowdown, TSMC's revenue totaled $76 billion in 2022, up 43% from the prior year. And net income grew 70% during that period to $34 billion as costs and expenses rose more slowly than revenue.
Value investors will probably also like earning $1.77 per share in annual dividend income. That will give shareholders a 2% cash return.
With the $5,000 budget split among the three stocks, investors can buy 18 TSMC shares. Considering the fast income growth and low P/E ratio, investors should consider following Buffett's lead.
Qualcomm
TSMC customer Qualcomm dominates the market for smartphone chipsets. This technical lead positions the company to earn revenue when customers upgrade to a 5G smartphone.
Moreover, it has prepared for the future, diversifying into such areas as the Internet of Things (IoT), chips for Meta's Oculus headsets, and various automotive needs. For example, it has developed a digital chassis that manages a car's communications and autonomous driving functions.
But investors should remember that Qualcomm is a consumer-oriented stock, and it expects the sluggish economy will slow its massive sales growth, at least temporarily. Indeed, its revenue of $44 billion in fiscal 2022 (which ended Sept. 25) grew 32% annually, and net income of $13 billion surged 43% over the same time frame.
Nonetheless, the company forecast a decline in handset-related revenue for fiscal Q1, a category that accounts for more than half of Qualcomm's revenue. Consequently, the stock has dropped more than 35% from its late-2021 high.
NASDAQ: QCOM
Key Data Points
Still, value investors will appreciate that this has left Qualcomm with a P/E ratio of 11. They may also warm up to its $3-per-share annual dividend, which has risen yearly since 2003 and works out to a yield of about 2.4%.
One-third of a $5,000 investing budget would buy investors 13 shares of Qualcomm at current prices. That makes for an excellent starter investment in this potentially high-growth value stock.
