3 stocks to buy now before it recovers

After a slight selloff in the market, many companies look like great deals. Most of the news that causes this decline will be irrelevant in three to five years, so there’s no reason to panic.

Top of my shopping list is today Taiwan Semiconductor Manufacturing (NYSE: TSM), Alphabet (NASDAQ: GOOG) (NASDAQ: GOOGL)and Amazon (NASDAQ: AMZN). All three companies have fantastic long-term tailwinds and look like strong buys right now.

Taiwan Semiconductor

Taiwan Semi is probably the most critical company in the world. Without its manufacturing capabilities, companies like it Apple, Nvidiaand almost any other company that depends on high-tech devices would be out of luck. Best-in-class semiconductor manufacturing capabilities enable it to produce state-of-the-art chips in the 3nm marketing category.

These specialized manufacturing techniques require incredible knowledge and skill to implement on a large scale, so dismantling TSMC is nearly impossible, although there are still worthy competitors out there.

Right now, the stock is about 10% off its 2024 highs, but still worth buying, even if investors missed the true bottom. At 26 times forward earnings, it’s still not expensive for the growth it carries.

In the second quarter, revenue grew 33% in US dollars, while providing solid guidance for the third quarter (32% revenue growth). Taiwan Semi is well positioned to benefit from the constant growth of technology in our lives. If investors have a chance to buy the stock on sale, they should take advantage of the opportunity.

Alphabet

Even without the sales, Alphabet looked like a great buying opportunity. Despite being one of the largest companies in the world, Alphabet does not earn a premium valuation like its peers. The parent company of Google, YouTube and the Android operating system is priced at just 22 times earnings.

With its peers at valuations of 30 times forward earnings or higher, Alphabet looks like one of the cheapest big tech stocks. And its cheapness is not associated with its business performance, because Alphabet crushed it.

In Q2, Alphabet’s revenue rose 14% year over year and increased its operating margin by three percentage points. Google Cloud, in particular, had a great quarter, with revenue up 29%. This is a critical division, and the strong results show that it is still a top choice in the cloud computing space.

Alphabet is a dominant company that does not have the premium that its peers carry. This is a great opportunity to get shares at a fantastic price.

The story continues

Amazon

In the eyes of some investors, Amazon may do the worst of the three. In Q2, sales only rose 10% to $148 billion, but investors wanted more. The company also issued guidance for revenue growth of 8% to 11% for Q3, which did not please the crowd.

However, this is the wrong figure to be looking at. Amazon will not deliver explosive growth due to its sheer size. Instead, I would point out to investors how profitable Amazon is becoming. Amazon provides guidance for operating income that is expected to reach between $11.5 billion and $15 billion next quarter, compared with $11.2 billion in the year-ago period.

Unless operating income falls in at the lower end of management’s guidance, it will provide excellent earnings growth, which is critical in lowering Amazon’s valuation.

36 times forward earnings isn’t necessarily cheap, but reaching Amazon’s peak profitability in a year isn’t a realistic expectation either. Amazon’s long-term trajectory is to grow earnings much faster than revenue as it works to increase profitability across the board.

This is my primary investment thesis in Amazon, and it will take years to play out. If investors are focused on growing revenue and therefore sell the stock, then that gives me a cheaper purchase price.

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Suzanne Frey, chief executive at Alphabet, is a member of the Motley Fool’s board of directors. John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a board member of The Motley Fool. Keithen Drury has positions in Alphabet, Amazon and Taiwan Semiconductor Manufacturing. The Motley Fool has positions in and recommends Alphabet, Amazon, Apple, Nvidia and Taiwan Semiconductor Manufacturing. The Motley Fool has a disclosure policy.

Selling the Stock Market: 3 Stocks to Buy Now Before It Recovers was originally published by The Motley Fool