3 Top Tech Stocks to Buy in February – The Motley Fool

Returns as of 02/14/2022
Returns as of 02/14/2022
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Tech stocks have been bouncing back of late, but certainly not all the way back to where they were at the beginning of January. Amid the rout, some top-quality tech names have now been thoroughly discounted.
That spells opportunity for those who may feel fear but can look out beyond near-term bumpiness in the economy. At their discounted prices, the following top tech stocks look quite attractive today.
Image source: Getty Images.
When everyone was selling it last week, I was buying shares in Facebook parent Meta Platforms (NASDAQ:FB). That is not to say Meta doesn’t have real problems. Guidance for revenue growth between 3% and 11% for the next quarter marked a big deceleration, and competition from Tik Tok is a real concern. Furthermore, user growth seems to have stalled out in the U.S. and Europe, and even the “rest of world” segment saw a sequential decline in monthly active users (MAUs). And Meta still faces lots of public scrutiny, especially after last summer’s whistleblower, Frances Haugen, testified before Congress.
So why invest in a company with all of these problems? Basically, after its post-earnings plunge, Meta is a really, really cheap value stock. Its P/E ratio now sits an attractive 17 times trailing earnings. However, Meta stock is actually even cheaper than it appears.
Like some other large-cap tech rivals, Meta has both its core profitable business and the newer Metaverse venture, which it is currently burning through several billion dollars each quarter. However, if one strips out Metaverse losses, Meta made $57 billion in operating income last year. Assuming a 20% tax rate, that’s $45.6 billion in net income in its core business.
Even with more modest revenue growth expectations, that figure should easily top $50 billion in 2022. Of note, the first half of 2022 will probably be lower growth than the second half, because that’s when Meta’s results are lapping quarters before changes in the iOS privacy rules that have limited targeting capabilities. So results should get better later in the year.
Meanwhile, Meta’s market cap has fallen to just $634 billion as of this writing, and an enterprise value of just $586 billion after stripping out Meta’s extra $48 billion in cash. So its EV-to-earnings ratio for its core business in 2022 is probably around 11. That’s what one would expect from a low-growth bank or declining media business, not a top tech stock pushing into new frontiers.
Obviously, the Metaverse spending may not pay off for years. But given the technology expertise at this company, it seems unlikely there will be zero payoff in the future. Yet even if one ascribes zero value to the Metaverse venture, Meta is a cheap stock on the merits of its leading social media platforms alone.
Another laggard in large-cap tech has been Amazon (NASDAQ:AMZN). Unlike Meta, Amazon surged after its recent earnings report, but shares really haven’t moved for the better part of two years, even as other FAANG rivals have risen.
It’s likely that investors are having trouble with Amazon’s low overall profitability, as well as tough comparisons to the pandemic-year e-commerce boom. On the surface, that has proved true. Sales from Amazon’s online stores actually fell 1%, or increased 1% when factoring in foreign exchange headwinds last quarter. Third-party seller services were up only 12%, and overall revenue increased just 10%, adjusted for foreign exchange — a very low rate for the growth-oriented Amazon. Meanwhile, total company operating income fell year-over-year amid surging costs and investments in fulfillment.
However, I’d argue e-commerce is now the least important part of Amazon’s business. The most important? Amazon Web Services, the leading cloud computing platform globally. Last quarter, AWS revenue accelerated a whopping 40%, and is now on a $71 billion run-rate. AWS operating margins also rose on a year-over-year basis, with AWS operating income up 46% to nearly $5.3 billion, or more than $21 billion annualized.
At a $1.6 trillion market cap, Amazon is currently trading at less than 80 times run-rate AWS operating income. That would be expensive, but not really a crazy price at all to pay for this best-in-class tech business with a decade of strong growth ahead of it. So one could say investors are getting Amazon’s leading e-commerce ecosystem for free, when stripping out AWS. In addition, Amazon just broke out its high-margin advertising revenues for the first time last quarter, revealing nearly $10 billion in quarterly ad sales growing at a strong 33% rate. That segment is probably very valuable as well. 
So while Amazon’s current revenue and profits are being affected by a deceleration in e-commerce and an increase in costs as it continues to build out its vast delivery infrastructure, the stock still appears pretty cheap based on the sum of its parts. It’s a buy, even after its post-earnings surge.
Finally, semiconductor equipment manufacturer Lam Research (NASDAQ:LRCX) also looks like an attractive buy this month. Lam’s stock fell a bit after its recent earnings report, in which revenue came in a bit lighter than expected, even though earnings per share beat expectations. Lam also gave soft guidance for the next quarter, indicating sequential declines.
That may be surprising to some, given that we are still in a petty big semiconductor shortage, and that global foundries are investing all they can to keep up with demand. That should lead to booming equipment sales for companies like Lam, not declines.
Unsurprisingly, Lam’s management is attributing the current shortfall to supply constraints, which is preventing Lam from meeting booming demand. So Lam’s sales are probably only deferred, not lost. Management expects the situation to improve in the back half of the calendar year, and for growth to be much better than the first half. Even third-party research firm VLSI expects 23% growth in wafer front-end equipment sales this year, on top of a record 2021.
Amid the tech rout, Lam trades at only 15.9 times 2023 earnings estimates (its fiscal year ends in June of 2023). Yet management continues to reward shareholders with ample share repurchases and a rising dividend that yields around 1% today.
Meanwhile, Lam just unveiled what it calls a “breakthrough technology” in selective etch and deposition equipment. The newly introduced tools will enable chipmakers to stack transistors vertically, which is the next frontier of chip innovation. Current chips have packed nearly as many transistors onto a silicon wafer as is physically possible, so 3D stacking is probably where future breakthroughs lie. Lam is a specialist in 3D stacking, so it’s well positioned for the next wave of semiconductor growth, all while trading at a below-market multiple.

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Stock Advisor launched in February of 2002. Returns as of 02/14/2022.
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