The tech sector took a beating last year. The tech-heavy Nasdaq Composite index ended 2022 down 33%, and plenty of individual tech stocks were down by far more. Things have looked brighter in 2023, though: The Nasdaq is up by 21% year to date. Yet even after that partial recovery, there are many great companies with stock prices that are still depressed in the wake of the bear market sell-off.
If you have $5,000 that isn't needed to pay monthly bills, bolster an emergency fund, or pay down short-term debt (like credit cards), you might want to consider investing it in a long-term holding. There are three particularly attractive stocks worth a closer look right now. Each has a track record of success and a bright future ahead.
1. The Trade Desk
The bull case for The Trade Desk (TTD 2.79%) could be made simply using recent results for this tech company that specializes in real-time automated ad programming for digital content deliverers. Revenue in the first quarter grew 21% year over year, and the company's net income of $9 million was a significant improvement over its Q1 2022 net loss of $15 million. These results continued impressive trends of growth quarter after quarter.
Beyond these recent results, though, there are further reasons for optimism about the company's future. One tailwind for the business is the trend in streaming services toward ad-supported subscription options. For example, Netflix recently introduced an ad-supported subscription tier, and Walt Disney launched one for Disney+. Both have seen strong early adoption and both use The Trade Desk's services.
The Disney+ situation is of particular interest to The Trade Desk investors because of a partnership between the two companies. On its Q1 earnings call, Disney management indicated that it might boost prices for its ad-free subscriptions in hopes of driving more subscribers to the ad-supported tier, where profitability is stronger.
The Trade Desk's management spoke about this on its earnings call as well. CEO Jeff Green made the point that as companies are forced to do more with less due to economic conditions, relevant and effective advertising is going to be more important than ever.
The bottom line is that as more television viewing happens on streaming services, and as more of that streaming is supported by ads, the more The Trade Desk stands to benefit. With its shares trading at a price-to-sales multiple near historical averages, now is a good time to buy.
2. ServiceNow
Because ServiceNow (NOW 0.07%) provides software solutions that help businesses optimize the way they run behind the scenes, it's likely unknown to many individual investors. However, that shouldn't dissuade you from taking a closer look, because ServiceNow has absolutely crushed the market. Over the past five years, ServiceNow stock is trading up 193% compared to the S&P 500's total return of 69%.
This performance shouldn't come as a surprise considering how sticky ServiceNow's products are with its clients. The business's renewal rate is routinely above 97%, and its established customers on average spend more with it over time. For example, in Q1 2021, ServiceNow had 1,137 customers with annual contract values of over $1 million. By Q1 2023, that number had grown 48% to 1,682.
Despite being up by 31% year to date, ServiceNow stock still trades at a price-to-sales ratio of 14, which is below its 10-year average. That isn't necessarily a cheap valuation, but considering the company's record of performance, I think that this relatively discounted share price is reasonable.
3. Adobe
Anyone who has opened a PDF file or used Photoshop has interacted with an Adobe (ADBE 0.42%) product. It has long been the leader in creative software, and it was one of the first companies to move to a subscription software model. That turned out to be a lucrative decision as Adobe stock has handily beaten the S&P 500 over the last 10 years.
Its stock performance over the past year has been a little more rocky. Shares are down 6% over the last 12 months. While the stock has recovered somewhat from its recent nadir, share prices plummeted 17% in September following the announcement that Adobe planned to acquire design software company Figma. Adobe agreed to pay twice what Figma was valued at by its most recent private funding round, prompting many onlookers to wonder if Adobe had overpaid.
While that planned acquisition makes its way through regulatory review, Adobe's business results remain impressive. In Q1, revenue increased by 9% year over year and annualized recurring revenue grew in all segments. Adobe also reaffirmed its revenue outlook and raised its earnings-per-share guidance.
The hangover from its acquisition-related stock drop left shares trading at a price-to-sales multiple of 9.6, near where it traded in 2017. But whatever happens with the Figma deal, Adobe remains the leader in creative software.
