3 tech stocks to focus on during the pullback
Since the start of 2023, the S&P 500 has risen 14%, while the tech-heavy Nasdaq Composite has risen nearly 38%. The recent surge in stocks has many wondering if we are in a new bull market. While stock prices have risen, uncertainty remains in the broader economy. The Federal Reserve recently paused its cycle of aggressive interest rate hikes. However, the federal funds rate is at its highest level since 2007, and concerns persist about how higher interest rates could affect the economy.
1. Meta $META+2.3%
Meta Platforms dominates digital advertising with its family of apps that includes Facebook, Messenger, WhatsApp and Instagram. According to Insider Intelligence, Meta has a 20% share of the digital advertising market. Only one company, Alphabet's Google, is ahead of it with a 28% share.
Last year, Meta struggled as a challenging macroeconomic environment led many companies to cut back on ad spending. While the number of ad impressions grew by 18%, the average price per ad fell by 16% and revenue grew by just 1%. In November, it announced 11,000 layoffs and will cut another 10,000 jobs this year.
Meta
METAOne concern that is still on the table, even though it certainly doesn't look like it right now, is the potential for a recession late this year or early next year. If we do see a recession, companies could cut advertising budgets further to keep costs down.
If that happens, perhaps a drop in $META+2.3% stock could be a great buying opportunity. This short-term challenging time could cut into the company's profits, but the point still stands that it's an incredible "money machine" and profits will always be there. After all, their apps are used today and every day. According to eMarketer, digital ad spending could grow 10% per year through 2027 , and Meta is in the best position to take advantage of that growth.
2. Roku $ROKU-1.4%
Roku dominates the streaming device industry and has a 50% market share, according to Pixalate . The company has nearly 72 million active accounts on its platform. Despite this, Roku stock has undergone a significant revaluation in recent years.
The company has had excellent results during the pandemic, with revenue up 55% in 2021 and the company reporting its first profitable year since going public. However, since peaking at nearly $491 per share in August 2021, Roku stock has fallen 87%.
Roku, Inc.
ROKURoku stock suffered from a slowdown in advertiser spending last year, but growth spending is what really dragged the company down. While revenue grew 13% last year, expenses grew 68% and swung from a net income of $242 million to a net loss of $498 million. An economic slowdown and a pullback in ad spending would undoubtedly impact profitability and share price, creating an excellent buying opportunity for long-term investors.
Roku has an opportunity to leverage its home streaming service and is working to make its platform more advertiser-friendly. According to Transparency Market Research, the global connected TV market is expected to grow 13% by 2031. Roku is well positioned to take advantage of this, making it a company worth at least considering in the next downturn.
If it makes anyone feel any better, Cathie WOOD has been shopping this company, but its purchases don't always work out either...
3. Visa $V+0.3%
When it comes to processing payments and moving money around the world, no one does more business than Visa. In 2021, Visa processed 244 billion transactions totaling $13.5 billion. Its next closest competitor, Mastercard, processed $7.7 billion across 140 billion transactions.
Visa
VVisa has a resilient business that can thrive in times of both economic expansion and inflation. That's because the company makes money on a certain percentage of the payment volume passing through its network. Another great thing about its business is that it is asset-light, leading to stellar profit margins averaging 46% over the past decade, and network effects keep it in a strong competitive position.
The only thing that could hurt its profits in the short term would be a slowdown in economic activity and a reduction in consumer spending. If that lowers the stock price, it could be a great opportunity to consider buying shares of this company. They aren't as volatile, plus you get a dividend every quarter. I wouldn't expect miraculous growth here, but as a place to park your money it might not be bad.
Allied Market Research forecasts that global credit card revenue will grow 8.5% annually through 2028, which will be a long-term boon for the dominant payments industry, Visa.
This is not financial advice. I am providing publicly available data and sharing my views on how I would handle the situation myself. Investing is risky and everyone is responsible for their decisions.
