Despite a strong start to 2023 with the Nasdaq-100 index rising 21%, several stocks have not kept pace with this growth. Nevertheless, I see strong buying opportunities in some stocks that haven't had the same level of success as their peers, so let's look at five of these to see why they are strong buys now.
1. Taiwan Semiconductor
Taiwan Semiconductor Manufacturing (TSM 2.59%) is the world's largest contract chip manufacturer. As such, it serves as a crucial pulse for the semiconductor industry, and the beat is struggling.
In the first quarter, TSMC's revenue increased by 3.6% in Taiwan dollars, and net income only rose by 2.1%. But due to a strong U.S. dollar, both of these positive metrics turn negative when currency effects are accounted for. And the weak chip market also caused the company to issue poor guidance for the second quarter, when it expects its revenue to fall by 9% in local currency and 15% in U.S. dollars.
However, Taiwan Semiconductor is one of the few foundries in the world with the ability to produce 3-nanometer chips -- the current, most powerful variety -- giving it an upper hand over the competition. Smaller chip traces allows the company to pack more chips into a single silicon wafer, resulting in a more cost-effective manufacturing process. Also, the more advanced semiconductors tend to deliver higher performance while drawing less power.
The next year might not be strong for TSMC, but it has a bright future. The stock trades for under 16 times forward earnings (which prices in the downturn), so it looks like an attractive purchase.
2. DLocal
A year ago, DLocal (DLO -2.36%) was a rapidly growing company with a high-flying stock. But the stock has been knocked off its perch by a report from the Muddy Waters Research short-seller inventing firm that claimed the company was lying about its total payment volume and take rates, and the stock fell 50% the day this report was published.
Since then, DLocal has hired an independent forensic accounting firm to investigate these claims, which were found to be unsubstantiated. The stock hasn't rebounded, though, which makes the stock a prime buying opportunity now.
DLocal is an essential link to companies wanting access to emerging-market economies. Its system allows merchants to accept local payments in countries like Turkey, Honduras, and Tanzania. Among its customer base are giants like Shopify, Microsoft, and Spotify, so its clients aren't fly-by-night minnows.
Revenue grew 55% year over year in the fourth quarter and produced $0.37 of profits per share throughout 2022, so the shares look like a steal trading at 24 times forward earnings.
3. Autodesk
Architects and engineers can't do their jobs without the software Autodesk (ADSK 0.01%) provides, making it essential even amid a recession.
The company is also highly efficient, posting an impressive 40% free cash flow (FCF) margin in fiscal year 2023 (ended Jan. 31). Although this company won't deliver market-crushing growth, Wall Street analysts predict its revenue will rise 8.2% this year and 11.7% in the next.
With Autodesk's steady performance, it makes a great addition to a portfolio to balance out some high-flying tech companies. The stock is an excellent buy at a mere 20 times FCF, the lowest multiple in five years.
4. Twilio
Customer communications are a crucial part of business, and Twilio (TWLO -2.58%) helps its clients with that through its application program interface (API) coding platform. With Twilio, even inexperienced coders can create automated text-messaging systems to remind customers of an appointment or inform them of package delivery.
And that's just one part of Twilio; it also has products to make personalized emails, program a digital phone assistant, and run marketing campaigns.
Revenue growth has slowed significantly since its pandemic boom, with organic revenue only rising 21% in the fourth quarter. However, now that Twilio isn't growing as fast, it's focusing on profitability. After two rounds of layoffs, management predicts the first quarter will have the company's first adjusted operating profit.
Twilio has a lot of demand issues to work out, but its stock trades for a dirt-cheap 2.5 times sales -- an absolute bargain.
5. Adobe
Adobe (ADBE -1.47%) investors have been fixated on one thing over the past seven months: the company's $20 billion acquisition of Figma, which provides workplace collaboration tools. While it is unknown whether this deal will proceed, Adobe's business has been quite successful without it.
In the first quarter (ended March 3), revenue rose 9%, with earnings per share ticking higher from $2.68 to $2.72. It also produced $1.59 billion in FCF, which it used to repurchase around 5 million shares in the quarter. This financial steadiness and discipline are similar to Autodesk's, and Adobe also works great as a steady performer in your portfolio.
At 23 times FCF, Adobe is valued at levels not seen since 2015, when it switched to the subscription business model. At these prices, it's hard to ignore, especially since the stock is only up 12% this year.
