Tech stocks have seen some recovery momentum early in 2023's trading, but many top stocks still trade at big discounts compared to previous valuation highs. While the tech-heavy Nasdaq Composite index climbed roughly 10.3% year to date as of this writing, the index's level is still down more than 28% from its peak.
For investors looking to build long-term positions in top companies, there are still opportunities to buy stocks with the potential to deliver explosive returns at big discounts. Read on to see why two Motley Fool contributors believe that adding these two stocks to your portfolio would be a smart move right now.
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CrowdStrike's best days are still ahead
Keith Noonan: For hackers attempting to illegally gain access to networks, trying to exploit connected hardware devices is one of the most common avenues of attack. CrowdStrike (CRWD -0.22%) stands as the leading provider of cloud-based endpoint device protection software, and its technologies prevent servers, mobile devices, and computers from being used as weak points for carrying out cyberattacks.
Despite providing essential, category-leading cybersecurity services, CrowdStrike saw its stock price slashed in conjunction with broader bearish trends for growth stocks and signs that economic conditions will create a less-favorable near-term growth outlook. CrowdStrike's stock currently trades down roughly 61% from its lifetime high, but I think that it stands a very good chance of bouncing back and delivering strong returns for patient investors.
Even with macroeconomic headwinds over the last year, CrowdStrike managed to increase revenue at an impressive clip, and it's got a large, fast-growing addressable market to continue expanding into. Management expects that it will have a total addressable market (TAM) of $76.1 billion this year. Based on its current software lineup, the company estimates that its TAM will grow at 13% compound annual growth rate from 2024 through 2025, reaching $97.8 billion.
With the company's guidance suggesting that it grew sales roughly 64% annually and reached revenue of approximately $2.23 billion last fiscal year, the business is still capturing just a small fraction of its addressable market. Rapid growth also shows that CrowdStrike is quickly gaining market share.
But the opportunity going forward actually looks even better. Spurred on by market growth for its existing service categories, new product launches, and an unfolding cloud security opportunity, management expects that the company's TAM in 2026 will actually be $158 billion.
CRWD PE Ratio (Forward) data by YCharts
With the company valued at approximately 57 times expected forward earnings and 9 times expected forward sales, CrowdStrike undeniably has a highly growth-dependent valuation, even after some big sell-offs for the stock. But its price-to-earnings and price-to-sales ratios also look low on a historical basis, and I believe the company's long-term growth story is still in its very early innings.
Meta Platforms has dealt with significant challenges effectively in the past
Parkev Tatevosian: Down 54% off its high in 2021, this might be an excellent time to buy Meta Platforms (META -11.66%) stock. The social media giant boasts billions of monthly active users across its family of apps, which are free to join and use. Meta makes its money by selling advertising to folks browsing the applications.
Additionally, Meta recently announced a premium plan that includes additional verification features and other benefits for users of some of its services who pay a monthly fee. It's too early to tell whether the premium service will gain widespread adoption.
Nevertheless, Meta has had no trouble turning the free service into a pot of gold. Between 2013 and 2022, Meta's revenue grew at a compounded annual rate of 36.8%. More impressively, the top-line growth boosted operating income from $2.8 billion to $28.9 billion in that same time frame.
Admittedly, that growth slowed in recent quarters as privacy policy changes implemented by Apple made it more difficult for Meta to sell targeted advertising. Marketers are willing to pay higher prices for precision ads because it reduces waste and increases return on investment.
This headwind goes some way to explaining why Meta's stock is trading at a discount. Still, the company has gone through challenging situations in the past and dealt with them successfully. Examples include the significant shift from desktop to mobile devices, and then from images to stories with multiple images uploaded in a single post.
All this suggests investors can be reasonably confident in Meta's ability to handle the current challenges effectively. Meanwhile, they can buy Meta's stock at a relatively cheap forward price-to-earnings ratio of 18.82.
CrowdStrike and Meta Platforms are poised to deliver wins down the stretch
Investors can use valuation pullbacks for top technology stocks as an opportunity to build positions that could translate to life-changing returns. CrowdStrike and Meta Platforms both enjoy leadership positions in their respective corners of the tech sector, and each of these companies looks poised to continue delivering wins over the long term. While the market may continue to be volatile in the near term, these two stocks stand out as worthwhile buys for investors looking to add top tech stocks to their portfolios.
