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Tech Sell-Off: 3 No-Brainer Stocks to Buy Right Now

While different areas of the technology sector have seen valuations wax and wane at different times, tech stocks have generally been under intense pressure lately. The good news is that some companies that are on track to be hugely influential over the next decade are now trading at huge discounts.

Here’s why a panel of Motley Fool contributors identified Zoom Video Communications (NASDAQ:ZM), Unity Software (NYSE:U), and Meta Platforms (NASDAQ:FB) as top stocks to buy amid the big tech sell-off.

A smiling person sits in a desk chair with feet on the desk, while looking at a computer.

Image source: Getty Images.

Zoom is moving into value-stock territory

Jason Hall: I’ll plant my flag on this hill. Zoom, trading for almost 10 times sales, is entering value-stock territory.

Over the past few years, Zoom’s explosive revenue growth has resulted in insane cash flow growth:

ZM Free Cash Flow Chart

ZM Free Cash Flow data by YCharts.

For a time, investors rode the wave, voting with their wallets to send Zoom’s shares ever higher, until they didn’t:

ZM Chart

ZM data by YCharts.

Here we stand, with Zoom’s shares down almost 80% from its all-time high, reached in 2020. Since the quarter Zoom stock peaked, Zoom’s business has doubled revenue and increased cash flow another 60%:

ZM Chart

ZM data by YCharts.

And I think Zoom still has plenty of growth to come. Its biggest customers are coming to it for more services, including Zoom Phone and other tools for collaboration and customer service, increasing their spending even as they shift from remote to hybrid work environments. Zoom is evolving, and its customers are there for it.

Yet investors continue to overlook it. On a cash flow basis, Zoom is now cheaper than not only Microsoft (NASDAQ:MSFT), which has comparable margins, but also Coca-Cola (NYSE:KO), a wonderful company that’s a favorite with value and dividend investors:

MSFT Price to Free Cash Flow Chart

MSFT Price to Free Cash Flow data by YCharts.

I believe that Zoom’s growth will continue for another decade. If you do also, then it’s a bargain worth buying today.

Unity is building the future of interactive experiences

Keith Noonan: Unity provides industry-leading software that helps users create interactive visual content. The majority of top mobile, augmented reality, and virtual reality games were already being built using the company’s platform, and the software provider actually managed to increase its market share in these categories last year. With the stock trading down roughly 52% from the lifetime high that it hit in November, I think it’s a great time to pounce on this one.

The company ended the fourth quarter with 1,052 customers generating more than $100,000 each over the trailing-12-month period, up 32.7% year over year. It also continued to see strong spending growth from customers already on board with its platform. Unity posted a dollar-based net expansion rate of 140% in the fourth quarter, which means that existing customers increased their spending 40% compared to the prior-year period.

Unity’s revenue surged 43% year over year in the fourth quarter and 44% annually in 2021, and the company is guiding for more strong performance in 2022. Management’s midpoint revenue target calls for growth of 35% this year, and it looks like the growth story here is just getting started.

Interactive experiences command levels of engagement that stand far above most other media, and demand for services that can aid in the creation of visual content, video games, and metaverses will continue to climb. The metaverse trend in particular is just starting to take off, and Unity is set to play a driving role in the evolution of virtual worlds and commerce in interactive digital spaces. For long-term investors, the stock offers big upside potential at current prices.

Meta Platforms operates in a massive industry with a dominant service

Parkev Tatevosian: Meta Platforms, formerly known as Facebook, is having a rough month. The stock is down 35% in that time frame — and that’s an excellent opportunity for long-term investors to start acquiring shares.

As of Dec. 31, Meta boasted 2.82 billion daily active users across its social media apps (Facebook, Instagram, WhatsApp, Messenger). That’s over a third of the planet checking at least one of its apps daily. Meta makes money by showing advertisements to folks browsing the platform. Last year, marketers spent an estimated $763 billion on advertising

There is scarcely any other platform that can match the scale of Meta. Admittedly, some of Meta’s user-targeting capabilities may be hindered by privacy changes implemented by smartphone manufacturers. Still, people willingly share information with its social media sites that can help with targeting, and it can indeed find ways to encourage even more sharing.

Meta’s business model has proven incredibly profitable. In the last decade, earnings per share have grown at a compound annual rate of 45.9%. At that same time, revenue grew at a 41.3% compound annual rate.

The stock has crashed primarily for two reasons: the privacy changes from major phone manufacturers, and rising competition from short-form video sites. That said, this is not Meta’s first rodeo. It has overcome significant challenges before — for instance, when consumer internet usage changed from desktop to mobile devices. There’s precedent for believing it can overcome the current obstacles as well.

Meanwhile, as the rest of the market worries about its prospects, long-term investors can buy Meta’s stock at a price-to-free-cash-flow ratio of 15.58, and a price-to-earnings of 15.44. These are the lowest multiples it has sold for in the last five years. For those reasons, Meta Platforms is a no-brainer stock to buy.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.

Read More: Tech Sell-Off: 3 No-Brainer Stocks to Buy Right Now

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