The stock market has been volatile this year. And I expect to see more volatility in the months ahead. If one is willing to take a five-year view however, there are plenty of great stocks to buy today. Here’s a look at two world-class shares that I believe will do well over this timeframe and are worth considering right now.
A key player in the tech revolution
First up, we have ASML (NASDAQ: ASML). It’s one of the most important players in the semiconductor industry.
ASML specialises in lithography systems, which are used to produce computer chips. What sets this company apart from others though is that it’s the only manufacturer of Extreme Ultraviolet (EUV) lithography machines, which are used to produce the most advanced chips (needed for artificial intelligence and other emerging technologies).
Given its market position, it looks well placed for success in our increasingly digital world. As companies like Intel and TSMC build chip manufacturing plants in the years ahead, ASML should see high demand for its state-of-the-art equipment.
At present, analysts expect ASML to generate revenue and earnings per share growth of 15% and 23% respectively this year. That’s a decent level of growth.
As for the valuation, the forward-looking price-to-earnings (P/E) ratio is only 24 using next year’s earnings per share forecast. Looking at that valuation, I see growth at a reasonable price. Note that a few years ago, ASML had a P/E ratio in the 40s. So, the valuation has come down substantially recently.
A risk with this stock is that equipment orders can be lumpy at times. Like London buses, they sometimes go missing for a while before all arriving at once.
Another risk is import restrictions. These could have a short-term impact on growth.
Taking a five-year view however, I’m excited about the potential here. I expect ASML’s revenues and earnings to increase significantly in the years ahead.
An under-the-radar AI stock
Another company that could prosper as the world becomes more digital is Snowflake (NYSE: SNOW). It’s a data storage and analytics services provider that aims to help other companies achieve their full potential through data and AI.
This company is having a lot of success right now as businesses scramble to get their data organised (in order to take advantage of AI). Last quarter (ended 30 April), the company generated revenue of $1bn, up 26% year on year.
Note that at the end of the quarter, the company had 606 customers with trailing 12-month product revenue greater than $1m. When I first started covering Snowflake back in 2020, it had less than 70 of these customers.
One risk to be aware of with Snowflake is that profits are still small. This can lead to share price volatility at times (because it’s harder to value the stock accurately).
Another risk is competition from rivals such as Amazon and Databricks. Data is a competitive industry.
I see quite a bit of long-term potential here, however. It’s worth noting that since Snowflake’s recent earnings report, several brokers have raised their price targets to between $230 and $250 – a level significantly higher than today’s share price.
