As the Nasdaq enters a correction, stocks are going on sale.
The stock market's jitters are spreading quickly. Just a few weeks after major market indexes peaked, stocks are plunging with the Nasdaq Composite (^IXIC 0.51%) already having entered a correction (a decline of more than 10% from a recent peak).
Stocks fell sharply for the third straight day on Monday as investors wrestled with downbeat economic data and a shock in Japan after the Nikkei fell double-digits as the Bank of Japan surprised investors with a rate hike. That action began a massive unwinding of a global "carry trade" in which investors were borrowing yen at near-zero rates and investing it elsewhere.
Seasoned investors know that while stock market sell-offs are scary, they also offer good buying opportunities. No one knows how long this correction will last, but it's a good idea to have a list handy of stocks to buy if the decline continues. Keep reading to see three top stocks that are on sale right now.
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1. Alphabet
Alphabet (GOOG 0.95%) (GOOGL 1.01%) has been a top tech stock for over a decade, a starring member of both the FAANG stocks and the "Magnificent Seven," and its eminent position shows no signs of changing, despite the upheaval from generative AI technology.
Alphabet has overcome early doubts about its AI capabilities and has continued to put up strong growth in recent quarters. It's also driven margins higher thanks in part to a round of layoffs last year. Its core digital advertising business led by Google Search continues to deliver solid growth, and its cloud computing business has ramped up profits after years of losses.
As of Monday, Alphabet stock is now down 17% from its peak a few weeks ago, and the stock already looks like a good value at a price-to-earnings ratio of 23.
Even if the economy enters a recession, Alphabet's competitive advantages will remain intact, and the stock should eventually recover its recent losses and return to new heights. Its second-quarter earnings report included revenue growth of 14% and a jump in operating income of 26%, showing that there's still plenty of growth left for the tech giant.
2. Taiwan Semiconductor Manufacturing
Taiwan Semiconductor Manufacturing (TSM 1.56%), or TSMC, is the world's largest contract semiconductor foundry. It's an essential cog in the global economy during normal times, but in the AI revolution it's become even more valuable as it makes roughly 90% of the world's advanced chips. It's established a competitive advantage through its technology, customer relationships with the likes of Apple, Nvidia, AMD, and Broadcom, large capacity, and a history of execution.
Like the rest of the semiconductor sector, TSMC is subject to cyclical forces, but its business has been on an upswing following a slowdown in the sector a year ago. In the second quarter, revenue jumped 40%, or 33% in dollars to $20.8 billion, while net income was up by a similar rate.
Taiwan Semi stock is now down 25% from its peak a few weeks ago and trades at a modest P/E valuation of 28, which looks like a great price for a company with its competitive advantages and growth rate.
3. Advanced Micro Devices
Advanced Micro Devices (AMD -1.50%) might not seem as resilient as the other two stocks on this list, but the chipmaker deserves a closer look following a strong earnings report last week.
AMD is down by more than 40% from its peak in March when enthusiasm for its new AI chips seemed to peak, but the stock is also down 28% from the Nasdaq peak just a few weeks ago, even as its earnings report impressed investors last week.
However, AMD now seems to be capitalizing on the AI boom. When stocks fell sharply on Friday, AMD finished flat, and it closed Monday up 2% even as the Nasdaq lost 3.4%. Part of the reason for those gains is the dismantling of rival Intel, which announced that it would cut at least 15% of its workforce last Thursday night and stop paying a dividend. Intel's quarterly results and guidance also missed expectations, showing ongoing challenges in its foundry business and beyond continue to plague the company.
That's opened up an opportunity for AMD, and the company already seems to be capitalizing on the AI data center market with its new Mi300 chip. In the second quarter, AMD reported a 115% jump in data center revenue to $2.8 billion, the segment driving the AI boom. While weakness in the embedded and gaming segments weighed on overall revenue growth, the momentum in the data center market bodes well for future results.
On an adjusted earnings per share basis, the stock trades at a P/E of 49, which looks like a good price considering the breakout data center growth. With Intel faltering, and revenue ramping in key areas, AMD looks like a good buy on any weakness from the market panic.
Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool's board of directors. Jeremy Bowman has positions in Broadcom. The Motley Fool has positions in and recommends Advanced Micro Devices, Alphabet, Apple, Nvidia, and Taiwan Semiconductor Manufacturing. The Motley Fool recommends Broadcom and Intel and recommends the following options: long January 2025 $45 calls on Intel and short August 2024 $35 calls on Intel. The Motley Fool has a disclosure policy.
