Top investors say it's foolish to ignore the value in tech stocks right now. What to buy and when

Months of dense selling has crippled the growth-focused exertion sector, prompting salient investors to travel to the decision that a slew of stocks are present ripe for investment.

To beryllium sure, galore besides hold a bottommost hasn't been priced successful conscionable yet, but stocks person toppled truthful acold disconnected their grounds highs that immoderate battered names look similar bargains. And the ongoing net play could service arsenic a catalyst that gets these stocks climbing again, astatine slightest successful the short-term, they say.

"This is the astir accidental I've seen since Q3 of '08, truthful I would accidental it's foolish to wholly disregard immoderate assemblage — fto unsocial exertion — conscionable due to the fact that of macro headwinds," said Paul Schatz, laminitis and president of Heritage Capital.

Since the commencement of 2022, the tech-heavy Nasdaq Composite has plummeted 32% arsenic investors disquieted the Fed's hawkishness would dilatory economical maturation and nonstop the system into a recession. Even shares of large exertion giants — Amazon, Microsoft and Alphabet — are much than 30% from their highs, with Meta Platforms and Netflix down much than 61% each.

Still, investors request to retrieve that not each battered sanction is an opportunity. Further losses could travel arsenic the system slows and income adust up. Snap's much than 30% dive Friday connected different disappointing quarter lone underscores the dangers that linger. The Snapchat genitor predicts nary gross maturation for the existent play and the quality sent stocks tied to advertizing similar Pinterest tumbling Friday.

When banal picking successful this environment, immoderate investors constituent to companies with little price-to-earnings ratios comparative to caller past and antiaircraft names similar IBM, which gained astir 5% connected Thursday after surpassing estimates connected the apical and bottommost lines and boosting its gross guidance for the year, arsenic immoderate of the champion ways to get successful connected the sector. Here are the ideas they shared with CNBC Pro.

The hunt for charismatic valuations

Looking astatine a company's price-to-earnings ratio and however existent trading compares connected a humanities ground tin assistance investors prime wherever to buy. The multiples connected galore large tech stocks person travel down successful caller months amid the marketplace shakeup.

Citi U.S. Equity Strategist Scott Chronert precocious upgraded the accusation exertion assemblage to overweight, saying that the S&P 500 requires maturation and exertion leadership if it hopes to instrumentality a limb higher, and maturation has outpaced worth since June's low.

Technology banal picks

"The high-level position is that the Tech assemblage (and Growth broadside of the S&P 500) person borne the brunt of aggregate compression related to the crisp determination higher successful some nominal and existent involvement rates earlier successful the year," helium wrote successful a enactment to clients. "In turn, we expected that immoderate perceived peaking successful Fed complaint expectations would trigger valuation alleviation connected the sector."

While Oakmark Funds typically looks beyond accepted PE to worth exertion stocks, portfolio manager Bill Nygren points to a slew of charismatic guardant PE multiples successful the abstraction similar Oracle, which is trading astatine astir 14 times adjacent year's net compared with an mean of 27.4 times implicit the past 5 years.

Netflix, too, has travel down to a guardant PE of astir 26 times, from a five-year mean of 95 times. The stock, which had been trading astatine astir 54 times successful December 2021, has fallen astir 55% this year. Nygren has stood by the institution passim this downturn and helium said helium expects the banal to reignite gross maturation arsenic it launches its ad-supported tier.

Earlier this year, Netflix's streaming dominance showed cracks arsenic it reported 2 consecutive quarters of subscriber losses. Sentiment seemed to displacement Tuesday arsenic it added 2.4 cardinal subscribers successful the 3rd quarter and revealed much accusation connected the company's effort to halt password-sharing. The quality boosted shares by much than 16% this week.

Robert Pavlik, elder portfolio manager astatine Dakota Wealth Management, said the downdraft successful names similar Salesforce and spot stocks Nvidia, Qualcomm and Broadcom connection enticing opportunities for young investors looking to get up for the long-term.

"You can't hold for the marketplace to get a consciousness that the system is turning due to the fact that astatine that constituent it volition beryllium excessively late," helium said.

Citi's Chronert said successful a caller enactment that helium besides expects a sentiment displacement successful the spot assemblage successful the coming months.

"In the lawsuit of Semis, we admit that a affirmative cardinal crook whitethorn inactive beryllium respective months off," helium said. "But, our proprietary valuation exemplary gives america information to beryllium aboriginal successful turning incrementally much constructive."

Nvidia is 1 of those spot stocks that's dropped sharply from its highs. It trades astatine a guardant PE of astir 36 times, down from 59 times successful January.

While investors person travel to presumption Nvidia and its gaming conception arsenic a play for the aboriginal metaverse and artificial intelligence, near-term occupation has persisted arsenic demand slowed for its gaming graphics cards. The banal is down much than 58% this year, arsenic the institution slashed its forecasts.

But Nvidia CEO Jensen Huang told CNBC successful September that helium is optimistic astir the company's next-generation graphics cards, which should merchantability good erstwhile inventory levels normalize.

The adjacent circular of net reports volition springiness investors a amended consciousness of request and however companies are managing done the existent conditions. Given the Federal Reserve's stance, investors request to absorption connected net and dividends erstwhile searching for value, said Cresset Capital Chief Investment Officer Jack Ablin.

"Without inexpensive money, we can't trust connected valuation enlargement anymore," helium said. His picks see names that boast prime equilibrium sheets and accordant dividends, including Apple, Microsoft, Texas Instruments, and Visa.

Looking extracurricular of large technology

Still, successful this volatile market, galore investors accidental immoderate of the champion values beryllium extracurricular the quintessential large exertion names. Schatz of Heritage Capital looks for what helium calls "high-flier" oregon "second-tier" exertion stocks severely battered this twelvemonth but pushing higher.

That includes Yelp, which was up astir 2% this year, and astir 41% disconnected its 52-week debased successful July, arsenic of Thursday's close. The advertizing banal continues to marque caller highs contempt fears of a pending advertisement recession. It has gained much than 9% successful October alone. It besides trades astatine 1 of the higher guardant PE ratios of the radical astatine much than 46 times.

Yelp's second-quarter gross roseate 16% twelvemonth implicit year, and was up 8% from the erstwhile quarter. Growing request successful its services categories has helped enactment its revenue.

Schatz besides pointed to Wix. Activist investor Starboard Value has taken an involvement successful the Israeli bundle company. Reuters reported that Starboard is talking with Wix astir ways to amended operations, margins and profitability.

The supplier of web improvement bundle had risen successful popularity during the pandemic arsenic accrued e-commerce enactment boosted demand. More precocious growth has slowed, forcing the institution to laic disconnected workers.

"You conscionable don't spot activism successful companies that whitethorn not exist," Schatz said.

Playing defense

When looking extracurricular of large tech, investors whitethorn besides privation to see looking retired for much defense-focused names.

While the assemblage isn't typically synonymous with defense, immoderate names bash instrumentality connected protective qualities that tin insulate investors successful the times ahead, said Randy Hare of Huntington National Bank.

His picks see IBM, which trades astatine conscionable 14 times guardant net and offers a sticky gross base. Ongoing macro themes besides power Hare's picks. He highlights a beardown labour unit and high-interest rates arsenic imaginable benefits for payroll processor ADP.

How investors prime tech stocks should besides beryllium connected their clip horizon. For investors person to retirement, Pavlik recommends Jack Henry & Associates, a supplier of back-end exertion enactment to galore banks, that is up much than 11% since January.

"'That sanction is ne'er going to spell away," helium said. "Maybe a fiscal instauration would look to get a cheaper terms from a akin steadfast but successful bid to enactment competitory these banks request to outsource that."

Another proposal is cybersecurity institution Palo Alto Networks, which benefits from a request for companies to support their IT systems. Its banal is down 13% this year.

Eyes connected net season

Gene Munster of Loup Ventures expects net play to supply a long-awaited bounce for tech stocks successful the weeks ahead.

While Munster said the marketplace hasn't deed the bottommost conscionable yet and helium retains a 3rd of his portfolio successful cash, helium points to stocks intimately tied to the user and mundane beingness arsenic immoderate companies positioned to bash good successful the adjacent term.

That includes Meta Platforms, down astir 61% this twelvemonth and trading astatine 13.4 times guardant earnings, arsenic an integral portion of the consumer's societal media orbit.

Another apt victor is video crippled shaper Take-Two Interactive, which helium says benefits from consumers' gaming addiction and a monolithic upgrade up to its beloved Grand Theft Auto franchise. The banal trades astatine astir 25 times guardant earnings, compared with a five-year mean of astir 48 times.

Should the marketplace determination up connected earnings, Munster besides expects erstwhile high-flying and heavy shorted Covid-19 names similar Peloton to emergence owed to abbreviated squeezes.

Many post-earnings bounces this twelvemonth person travel from companies beating connected lowered forecasts, Dan Niles of the Satori Fund told CNBC's "TechCheck" this month. Investors "mistakenly" person travel to judge this means the marketplace has deed a bottommost oregon that a sell-off signals a institution is simply a bully buy, helium said. Niles expects to spot a repetition of that arsenic net play continues.

"In immoderate ways, it's counterintuitive, but the worse the guidance is, the much apt the marketplace is going to mistakenly person a carnivore marketplace rally and past you are going to fig retired the numbers are inactive excessively precocious erstwhile we get to the extremity of the 4th quarter, and we're going to beryllium backmost successful the crockery again," helium said.

For this and different reasons, Independent Solutions Wealth Management's Paul Meeks cautions investing up of a report.

He does urge names continuing to rise gross adjacent successful a recession. That database includes little-known bundle stocks Harmonic and Aspen Technology, which are trading astatine astir 30 times and 36 times guardant PE, respectively. Both stocks are reasonably valued and proceed to turn their apical and bottommost lines though they boast smaller marketplace caps than astir pure-play tech names, helium said.

In a abstracted interrogation with CNBC's "The Exchange" this month, Meeks called the communications instrumentality supplier Harmonic a "safe haven successful the tech storm" due to the fact that it has consistently provided beardown EPS beats. Shares are up much than 23% this year.

Despite uncovering immoderate opportunities successful the space, Meeks said helium is stepping distant from making immoderate further tech investments astatine slightest until net play clears arsenic helium suspects markets person not deed a bottommost conscionable yet. Investors funny successful the abstraction should astatine slightest hold to bargain a banal until aft it's posted results fixed the rampant post-earnings volatility successful caller seasons, helium said.

Despite the dour near-term outlook, Schatz recommended investors statesman taking tiny positions up of a caller bull market.

"There volition not beryllium an each wide sounded," Schatz said. "By the clip astir radical recognize the tech carnivore marketplace is over, these stocks volition beryllium up 20%, 50%. Take smaller positions and virtually commencement buying them now."