Investors are warming back up to tech stocks these days. After slumping in 2022, the Nasdaq Composite Index jumped 16% through mid-April, doubling the rally in the broader S&P 500.
But there are still some impressive deals to be had among the tech sector, which was hit hard last year. With that prospect in mind, let's look at some standout stocks that are profitable and positioned for growth yet are still priced at a tempting valuation. Read on for some good reasons to buy Adobe (ADBE 1.29%) and Garmin (GRMN 1.06%) stocks right now.
1. Adobe is winning
Adobe has a lot going for it as a growth stock. Sure, the company's pace of sales growth slowed compared to pandemic peaks in 2021 and 2022. The software-as-a-service (SaaS) giant's first-quarter expansion rate was 13%, after adjusting for currency exchange rate shifts, while revenue grew 17% on that basis a year earlier. And investors are worried about a further slowdown in enterprise-tech spending.
Yet the digital creativity specialist is still winning market share in a growing industry with help from an expanding portfolio of its own services, plus a few bold acquisitions. Most Wall Street pros are projecting that sales will rise by roughly 10% in 2023 to $19.3 billon.
Investors will love Adobe's propensity to generate lots of cash from its subscription-based services. Operating profit margin is impressive at over 30% of sales, too. And yet the stock remains reasonably priced at below 10 times sales compared to a pandemic-high valuation of over 20.
2. Garmin looks cheap
There's no question that Garmin is going through a growth hangover today. Revenue fell 2% in 2022 after soaring by 19% in the previous year. Consumers last year decided to shift spending away from wearable fitness devices, which is Garmin's largest single-product line.
But the company grew sales elsewhere in its diverse portfolio last year, including in high-end niches like smartwatches and marine- and aviation-navigation platforms. This wide range of offerings gives Garmin's sales trends more stability than an investor can find with most other tech-device producers.
GRMN Revenue (TTM) data by YCharts.
And Garmin remains highly profitable. Operating profit margin fell by more than 3 percentage points last year but remains over 21% of sales .
Management's 2023 outlook projects stabilizing profitability trends and a return to sales growth as annual revenue crosses $5 billion. Risks to that forecast include a further slowdown in economic growth, which could push the timing of Garmin's rebound into 2024.
Patient investors can look beyond that short-term uncertainty toward much higher annual earnings over time. Garmin has demonstrated its ability to develop popular products across many growth niches while generating strong profits and cash flow.
This expansion path was interrupted in the wake of the pandemic but will return. In the meantime, investors can pick up the stock at a discount that reflects pessimism on Wall Street about 2023. Shares are trading for less than 4 times annual sales compared to a price-to-sales (P/S) ratio of 7 back in late 2022.
