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Tech stocks have been reeling from high interest rates this year.
Rising rates hurt tech stocks by making their future earnings less attractive compared to interest rates on Treasury bonds.
But have we bottomed out in tech stocks? The answer is probably no, as the Fed has made it clear that it will continue to raise rates. But it’s not 100% certain, and the Nasdaq Composite is up 6% since September 6th.
For those of you looking to start investing in tech stocks, here are three megacaps to consider. Morningstar assigns the broadest death of all. According to the research firm, a dead company can generate higher returns on capital for many years by fending off competition.
All three behemoths are also undervalued by at least 24% compared to the fair value estimates of Maledastar analysts. Here they are in alphabetical order:
Alphabet
(GOOGLE)
Morningstar analyst Ali Mogharabi set a fair price for the stock at $169. It recently traded at $111.
“Fidel dominates Google with over 80% of the online search market, resulting in strong revenue growth and cash flow,” he wrote in the opinion. That revenue comes from advertising.
“We expect continued growth in the company’s cash flow, confident that Google will continue to lead in search,” Mogharabi said.
It’s also promising on YouTube. “We see it as contributing more to the company’s top and bottom lines,” Mogharabi said.
Scroll to continue.
Amazon
(AMZN)
Morning Star analyst Dan Romanoff set a fair price for the stock at $192. It recently traded at $136.
“Amazon dominates the markets it serves, especially e-commerce and cloud services,” he wrote in his opinion.
“It benefits from several competitive advantages and, thanks to its size and scale, it has emerged as the clear e-commerce leader, offering consumers a choice of low-cost goods.”
Impressed with the Amazon Prime offering. “It will tie together Amazon’s e-commerce efforts and deliver consistent high-margin revenue from customers who frequently purchase from Amazon properties,” Romanoff said.
Microsoft
(MSFT)
Romanoff set a fair value for the stock at $352. It recently traded at $266.
“Since taking over as CEO in 2014, Satya Nadella has transformed Microsoft into a cloud leader, becoming one of two public cloud providers capable of offering the widest range of PaaS/IaaS solutions,” he wrote in his opinion.
Paas stands for Platform as a Service, which includes a full cloud deployment. IaaS stands for Infrastructure as a Service, which includes cloud services on a pay-as-you-go basis.
“In addition, Microsoft has embraced the open source movement and has largely moved away from the traditional perpetual license model to a subscription model,” Mogharabi said.
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