In the tech selloff, what growth stocks should I buy?

The Nasdaq index has sunk around 28% year to date. However, this has led to many buying opportunities in quality growth stocks — like these two.

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

Happy male couple looking at a laptop screen together

Image source: Getty Images

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

2022 has been terrible for growth stocks, with concerns of inflation weighing heavily. Indeed, the Nasdaq has fallen around 28% year to date and 20% over the past year.

Many parallels have also been drawn with the dot-com selloff in 2000, where the index fell 78% from March to October 2002. This has depressed investor sentiment further.

But although my portfolio has felt the pain of this, as a long-term investor I see many opportunities to buy quality growth stocks. In particular I am looking for profitability, as the valuations of these companies are well backed up by earnings.

Here are two companies I am buying right now.

A Warren Buffett stock 

An investment into Apple (NASDAQ: AAPL) five years ago would have delivered a return of nearly 300%. But year to date, the tech giant has sunk over 22%, largely in line with the wider fall in the Nasdaq. Over the past year, the Apple share price has risen just 5%, far lower than in previous years.

This weak share price performance has led me to buy this growth stock, as I believe it remains a great long-term buy.

For instance, the company is a money-making machine. In FY2021, net sales increased 33% year-on-year to $365bn, while operating income was able to soar 64% to $109bn.

The performance in FY2022 has also improved even further. In the six months ending March 26, 2022, net sales have increased around 10% year-on-year to $221bn, while operating income increased another 16% year-on-year to $71bn. This has supported an increase of $90bn to the existing share repurchase programme, which should help boost metrics such as earnings per share. 

There are macroeconomic uncertainties for the group, however. For instance, as interest rates increase, Apple’s interest payments may become more expensive. As Apple’s total debt pile totals around $120bn, this is an issue. At the same time, inflationary pressures may reduce consumers’ ability to buy Apple products. 

However, with a historically low price-to-earnings ratio of around 22, I am willing to accept these risks. For this reason, I will continue to buy this stock at these current levels. 

A growth stock increasing profits

Due to the current macroeconomic environment, many stocks have been reporting worrying trading updates. However, Salesforce (NYSE: CRM) has managed to defy this and upgrade its earnings expectations.

CEO Marc Benioff stated that “so far, we’re just not seeing any material impact from the broader economic world that all of you are in”. The company also increased its adjusted profit forecasts to $4.75 per share, up from previous forecasts of $4.63. This is a huge sign of confidence.

Unfortunately, there is the risk of a US recession in the near future. This means that economic activity slows down and this may lead to companies cutting their spending with the consumer relation management company.

However, in the past year, the Salesforce share price has dipped 26%, indicating that these risks may now have been priced in. Therefore, it is a growth stock I am very happy to own in my portfolio, as I believe it can deal with the macroeconomic uncertainties well. 

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Stuart Blair owns shares in Apple and Salesforce, Inc. The Motley Fool UK has recommended Apple and Salesforce, Inc. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

More on Investing Articles

Young female business analyst looking at a graph chart while working from home
Investing Articles

Why I think Rolls-Royce shares will pay a dividend in 2024

Stephen Wright thinks Rolls-Royce shares are about to pay a dividend again. But he isn’t convinced this is something investors…

Read more »

Investing Articles

1 of the best UK shares to consider buying in April

Higher gold prices and a falling share price have put this FTSE 250 stock on Stephen Wright's list of UK…

Read more »

Person holding magnifying glass over important document, reading the small print
Investing Articles

The market is wrong about this FTSE 250 stock. I’m buying it in April

Stephen Wright thinks investors should look past a 49% decline in earnings per share and consider investing in a FTSE…

Read more »

Black father and two young daughters dancing at home
Investing Articles

1 FTSE 250 stock I own, and 1 I’d love to buy

Our writer explains why she’s eyeing up this FTSE 250 growth phenomenon, and may buy more shares in this property…

Read more »

View of Tower Bridge in Autumn
Investing Articles

The FTSE 100 is closing in on 8,000 points! Here’s what I’m buying before it’s too late!

As the FTSE 100 keeps gaining momentum, this Fool is on the lookout for bargains. Here's one stock he'd willingly…

Read more »

Investing Articles

3 ideas to help investors aim for a million-pound Stocks & Shares ISA

The UK has a growing number of Stocks and Shares ISA millionaires, and this plan may be one of the…

Read more »

Illustration of flames over a black background
Investing Articles

2 red-hot UK growth stocks to consider buying in April

These two growth stocks are performing well, but can they continue to deliver for investors through 2024 and beyond?

Read more »

Charticle

Is JD Sports Fashion one of the FTSE 100’s best value stocks? Here’s what the charts say!

The JD Sports Fashion share price remains a wild ride during the first quarter. Could it be one of the…

Read more »