Whether it’s geopolitical tensions across Europe or the prospect of higher interest rates in the U.S. this year, there’s definitely no shortage of reasons to feel uncertain about the stock market right now.
The Nasdaq 100 technology index continues to flirt with bear market territory, which is defined as a loss in value of 20% or more — a level it has slipped through a couple of times already in 2022. But many individual tech stocks are already firmly past that mark, losing 50% or more amid the brutal sell-off.
But it’s not all bad news. For investors with a long-term time horizon, there are plenty of high-quality companies worth buying while they’re trading down in price. Here are five of them.
1. Cohu: Semiconductors
The semiconductor industry produces the advanced computer chips that power our everyday electronics, like smartphones and even the digital features in our cars. As life continues to transition further into the digital realm, the semiconductor sector is poised to remain a red-hot performer, and Cohu ( COHU -1.43% ) is one stock to buy for the long term.
The company doesn’t produce any chips itself, but it supplies testing and handling equipment to the world’s largest producers, which is critical to the manufacturing process. This equipment is designed to detect defects to ensure that only quality finished products reach the end-user, while maintaining production speed and efficiency.
Cohu is a minnow of the semiconductor industry, with a valuation of just $1.4 billion. It generated $887 million in revenue in 2021, with $3.45 in earnings per share, and its stock is extremely cheap compared to its peers. It trades at a price-to-earnings multiple of just 8, which is a 65% discount to the iShares Semiconductor ETF, implying Cohu stock would need to almost triple just to move in line with the broader sector.
2. C3.ai: Artificial intelligence
Artificial intelligence (AI) is one of the most transformative technologies in modern times. It offers the ability to make predictions based on mountains of data, and it can complete complex tasks instantaneously, which would otherwise take humans days or even weeks. C3.ai ( AI -5.96% ) is a trailblazer in the sector, building premade, customizable artificial intelligence applications used by 14 different industries (and counting).
C3.ai recently signed a deal with the U.S. Department of Defense worth $500 million over five years to speed up the adoption of AI within the federal government. And in the private sector, it has multiyear contracts with oil and gas giants like Shell and Baker Hughes, which use C3.ai’s applications to predict equipment failures and reduce carbon emissions by improving efficiency.
But perhaps nothing highlights the caliber of the company’s technology like its collaborations with tech leaders Microsoft and Alphabet‘s Google, which are working with C3.ai to improve cloud services for their customers.
C3.ai stock trades at a market valuation of just $1.9 billion right now, with over $1 billion in cash and short-term investments on its balance sheet. That means investors value its AI business at just $900 million, despite the company expecting to generate $252 million in revenue this year and having $469 million in remaining performance obligations, which typically convert to sales over time. Put simply, C3.ai is trading at a bargain-basement price right now.
3. Tenable: Cybersecurity
Cybersecurity is front-of-mind for many company leaders as they’re tasked with shifting more of their assets online, which has altered the threat landscape. In an early 2021 survey conducted by accounting giant KPMG, 500 CEOs ranked cybersecurity risk as the top threat to their organizations. It has led to soaring demand for proactive technologies like threat detection and vulnerability management, and Tenable ( TENB -2.25% ) is at the forefront.
The company’s Nessus vulnerability management platform is ranked No. 1 across most important metrics, including adoption, coverage, and accuracy. It has been downloaded over 2 million times, and it’s deployed in 30,000 organizations, protecting users from over 68,000 common vulnerabilities and exposures (CVEs) — the highest number in the industry.
Tenable generated over $541 million in revenue during 2021, and the company’s growth is being driven by its highest-spending customers, who have an annual contract value of over $100,000. Over the last five years, the number of customers in that category has grown 54% per year to 1,095 companies today. This highlights the increasing need for proactive cybersecurity tools among larger organizations, and Tenable is well-positioned to serve them.
As an added bonus, of the 16 Wall Street analysts that cover Tenable stock, not a single one recommends selling it.
4. Upstart: Financial technology
Upstart Holdings ( UPST -10.12% ) is a tech-focused financial services firm that earns money from banks by originating loans for them. The lending business hasn’t changed much over the last few decades, with most financial institutions still relying on the FICO scoring system to assess the creditworthiness of potential borrowers. The problem is, FICO only offers a very narrow view of someone’s financial situation — at least compared to what Upstart has developed.
The company leverages artificial intelligence to assess over 1,600 different metrics, providing lenders with a more comprehensive look at a customer’s creditworthiness. But the impressive part is that it can generate an instant decision 70% of the time, whereas it might take human assessors weeks to analyze that much data. The result is great for lenders, and Upstart estimates it reduces default rates by up to 75%.
The company’s growth is soaring. In 2021, it grew revenue by 264% to $849 million, blowing away even its own guidance of $500 million. But Upstart is also profitable, generating $2.37 in adjusted earnings per share last year, a 930% increase from 2020. Much of its performance going forward could be driven by its recent entry into the lucrative automotive loan segment, which is something to pay close attention to.
With Upstart stock down a whopping 75% amid the brutal tech sell-off, now might be an opportune time to get involved.
5. Meta Platforms: The metaverse
Perhaps no subset of the technology sector is more interesting than the metaverse right now. The virtual world purports to be the next generation of social interaction, and it promises countless opportunities for business and commerce.
Of all the companies trying to develop the metaverse, none are better placed than Meta Platforms ( FB 1.02% ), given its enormous budget and its leadership position in the social media industry with over 2.9 billion monthly active users across Facebook, Instagram, and WhatsApp.
Meta is looking to build the foundations of the metaverse, which means it could have control and pricing power over the transactions that occur within it. It’s investing heavily in the project, with its Reality Labs segment burning $10 billion on development in 2021 alone, which caught the eye of investors. But since Meta is expected to generate $132 billion in revenue this year, that investment is a drop in the bucket.
That’s especially true when you assess the size of the metaverse opportunity, which by some estimates could be worth $1.6 trillion annually by 2030. Plus, since Meta is a highly profitable company, it can afford to be patient — and so can investors.
In fact, it generated $13.77 in earnings per share during 2021, placing its stock at a price-to-earnings multiple of 14. That’s 53% cheaper than the 30 multiple of the Nasdaq 100 index, implying Meta stock would have to double just to trade in line with the broader tech sector.
That translates to a long-term growth opportunity in an exciting industry, at a major discount to the market right now.
This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis – even one of our own – helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.