The Nasdaq-100 is full of strong tech companies, but not all of them make for great investments. However, with many tech companies still well off their highs, investors should look around for companies with solid futures that can be bought for a great price.
Three I've identified are Airbnb (ABNB 0.99%), MercadoLibre (MELI 1.49%), and Alphabet (GOOGL 9.77%) (GOOG 9.52%). Read on to discover why now is an opportune time to purchase this trio.
Airbnb
Airbnb has become synonymous with the alternative stay category. The industry leader had phenomenal growth in the fourth quarter, with a 20% year-over-year rise in nights and experiences booked. Additionally, management sees robust demand continuing into 2023, with a strong backlog extending into the first quarter.
Unlike some tech companies, Airbnb also produces strong profits, posting a 17% net income margin in Q4. Because Airbnb was still dealing with headwinds in Q1 2022, the company's price-to-earnings ratio isn't a good metric to value the stock, as it utilizes earnings generated over the past year. However, when forward projections are used, Airbnb trades at a somewhat pricey 33 times forward earnings.
With Wall Street analysts projecting Airbnb to grow sales by 14% in 2023 and 15% in 2024, this high valuation is warranted. Airbnb has a best-in-class offering and strong growth ahead, and investors should consider adding this stock to their portfolio.
MercadoLibre
E-commerce companies didn't do well in 2022, mainly because of the difficult comparisons to 2021 growth. Latin-America-focused MercadoLibre hasn't seen the same slowdown -- in fact, it experienced substantial growth in 2022.
| Segment | Q4 Revenue | Growth (YOY, Currency Neutral) |
|---|---|---|
| Commerce | $1.66 billion | 36% |
| Fintech | $1.34 billion | 93% |
Data source: MercadoLibre. YOY = year over year.
Despite this strong growth, MercadoLibre is valued as if this growth will disappear.
MELI PS Ratio data by YCharts
That's far from the case, as Wall Street analysts project 24% growth in 2023 and 2024. Additionally, MercadoLibre's profitability is rapidly improving, with its net income margin rising from a 2.2% loss in last year's Q4 to a 5.5% profit in last month's fourth-quarter report.
With the e-commerce and fintech rollout in Latin America far from complete, MercadoLibre still has a massive runway. The future is bright for MercadoLibre and the stock is cheap, making it a no-brainer buy.
Alphabet
Few tech giants have received the same scrutiny that Alphabet has as competitors rolled out various artificial intelligence (AI) solutions. However, Alphabet has begun releasing some of its AI products, making it clear that Alphabet hasn't lost its edge. While the AI battle is far from over, Alphabet's stock has traded as if it has already lost.
GOOGL PE Ratio data by YCharts
In reality, Alphabet's stock is waiting to explode higher. Alphabet's revenue only grew by 1% in Q4, primarily because of its advertising revenue concentration. However, when the economy recovers, this growth will likely return, increasing its earnings and reducing its valuation.
Additionally, Alphabet has enacted cost-saving measures by cutting programs and laying off some of its workforce. This will also help Alphabet's profitability, making the stock seem like a bigger bargain.
Alphabet also has a booming cloud computing division, Google Cloud, which is getting close to producing a profit.
| Quarter | Google Cloud Operating Margin |
|---|---|
| Q1 2022 | (16%) |
| Q2 2022 | (13.7%) |
| Q3 2022 | (10.2%) |
| Q4 2022 | (6.3%) |
Data source: Alphabet.
With multiple catalysts likely increasing Alphabet's profits, the stock has a ton of upside. I think the stock is a strong buy here and will probably beat the market over the next three to five years.
