The chatter about a recession in 2023 is on the rise. Maybe it's merited. Maybe it's not. But for shareholders of certain companies, such weakness won't really matter. These companies are built to last and remind investors their portfolios can thrive in even the toughest of environments.
Here's a closer look at three of these names whose stocks were erroneously beaten down last year. They're rebounding now, but there's still plenty of reason they can continue rallying.
1. Alphabet
There's no denying Google parent Alphabet (GOOG 0.37%) (GOOGL 0.35%) isn't the bulldozer it used to be. The search engine industry is mature. So is the mobile operating system business that Alphabet's Android dominates. Alphabet offers a suite of cloud computing services, but so do powerhouses like Microsoft and Amazon. Meanwhile, it's just tough to continue logging huge growth when you're already huge.
This stock's 30% pullback from 2021's highs, however, is rooted in more worries than are justified.
Don't misunderstand. As was noted, the company's highest growth days are in its past. Its fourth-quarter sales and earnings misses may not be its last shortfall. Ad revenue actually fell year over year for the quarter in question, calling the future strength of its core business into question. It's a dynamic most investors just aren't accustomed to seeing from Alphabet.
But what's not being factored in is the sheer dominance Alphabet still enjoys in the search engine space, and the opportunity it has with YouTube.
GlobalStats estimates Google currently controls a little over 93% of the search market, a strong lead it's held for a long, long time. While the industry's per-click revenue has been steadily shrinking for years, Google's piece of the shrinking pie has held steady for years; it's unlikely to waver anytime in the foreseeable future either. In the meantime, Alphabet is finally turning up the heat on its position as a potential middleman between vendors and shoppers who search the web first when they're ready to make a purchase.
As for YouTube, in case you haven't noticed, a bunch of people now watch it like they used to tune in to conventional television. When counting the viewing time of its alternative cable service YouTubeTV (which only boasts on the order of 5 million paying customers), viewer-ratings firm Nielsen says YouTube is the most watched streaming platform in the U.S., delivering more watched hours than Netflix, Amazon Prime, Disney's Hulu, or Warner Bros. Discovery's HBO Max.
Alphabet will continue to refine the business models around both of these ever-changing markets.
2. MercadoLibre
You may have heard MercadoLibre (MELI -1.98%) referred to as the Amazon of Latin America. And to be fair, it's not an entirely unfair comparison. It is an incomplete and slightly misguided comparison, though. MercadoLibre is also arguably the eBay and PayPal of Latin America, managing an online payment platform and online auction platform in addition to its e-commerce operation.
Whatever it is, it's rolling. Its Q4 2022 revenue of $3 billion was up 56% year over year, extending a similar growth rate for the entirety of 2022. Analysts are calling for top-line growth of around 24% for this year as well as next year.
The reason you may want to step into MercadoLibre isn't its steep sales growth, however, although that's certainly a solid bullish argument.
It's not the company's growing dominance of Latin America's online marketplace either, even though that's a compelling argument as well. (Americas Market Intelligence, or AMI, estimates Latin America's e-commerce industry will grow at an annualized pace of 25% through 2025 prompted mostly by an explosion of its mobile high-speed internet industry. AMI adds that the bulk of this e-commerce growth will materialize in Brazil and Mexico, where MercadoLibre is already a key player.)
Rather, the top reason to consider stepping into a MercadoLibre position here is the fact that its profitability is now exploding. Per-share earnings are projected to grow from last year's $9.53 to $16.73 this year to $23.99 in 2024, easily outpacing sales growth. This pace of profit growth isn't yet fully reflected in the stock's present price.
3. ASML
Last but not least, add ASML (ASML -2.05%) to your list of stocks that are screaming buys right now, while it's still down more than 20% from its late-2021 high. The 68% rally off of last October's low is only the beginning.
It's not a household name, but there's a good chance you or someone in your household benefits from ASML's products. The $260 billion Netherlands-based outfit is in the semiconductor business. It doesn't make them, though. Rather, it helps manufacturers like Intel, Samsung, and Taiwan Semiconductor Manufacturing fabricate their chips using ASML's top-notch extreme ultraviolet (EUV) lithography systems (lithography is simply photo-etching a circuit pattern on a circuit board).
ASML was in the wrong place at the wrong time, up-ended by the semiconductor supply chain's 2020 and 2021 breakdown. While its tech helps manufacturers make the chips the world desperately needed in the wake of the pandemic's disruption, the industry was so wrecked, this company's future turned murky.
With the dust now settling, one thing is becoming clear: The world still needs microchips, and it still needs the necessary technological tools to make them. That's why ASML's top line is expected to grow nearly 30% this year despite brewing economic weakness, to be followed by respectable 11% sales growth next year. Earnings are expected to improve accordingly, from last year's per-share profit of $14.84 to $20.11 this time around to earnings of $24.37 per share next year.
And yet, it's only a taste of what's waiting down the road. Market research firm Technavio believes the global semiconductor foundry (manufacturing) facility market will grow at a healthy clip of nearly 8% per year through 2027, jibing with Mordor Intelligence's outlook.
While this single-digit growth pace isn't exactly exciting, bear in mind that ASML Holding's lithography tech will help the company win more than its fair share of this growing market. Fitch Ratings expects ASML's lithography tools "to remain a core component for chipmakers" thanks to the advent of artificial intelligence and virtual reality that require high-performance chips made by a lithographic process. Fitch goes on to flesh out its optimism with numbers, pointing out that ASML's market simulation model in 2022 guided to potential 2025 revenue of 30 billion to 40 billion euros, up 30% from the 24 billion to 30 billion euros predicted in 2021.
As was the case with MercadoLibre, that's growth arguably not currently priced into the stock.
