Tech Stocks Go On Sale

Last week, I warned about a bubble in AI.

I don’t think the bubble has burst.

But tech companies, especially ones related to AI, had a really rough week.

On Thursday, the NASDAQ Composite Index fell over 2%.

It was the worst day for the NASDAQ in over a month.

What’s the cause?

There are a few reasons.

First, the stock market, and in particular, tech stocks, have had a great 6 months.

Even when the stock market is trending higher, there will be periods when stocks pull back.

Despite the recent drop, the NASDAQ is still up over 22% since mid-May.

And the NASDAQ is still within 5% of its all-time high reached in October.

So while the drop seems big, the larger picture shows it’s not as bad as some headlines might make you feel.

The main thing is not to panic.

Second, the Fed might not lower interest rates next month.

Stocks love when interest rates drop.

It means borrowing costs are lower, which can drive more economic activity.

A few weeks ago, people overwhelmingly thought the Fed was going to lower rates another 25 basis points (bps).

But it’s no longer true.

CME Group has a tool called FedWatch.

It measures the probability of Fed interest rate decisions based on futures contracts.

Since mid-May the chances of the fed funds rate dropping another 25 bps steadily rose.

It’s one of the main factors the stock market has done so well recently.

But since mid-October, expectations of another rate cut started to fall off.

The probability is still over 60%, but people are starting to think interest rate cuts will be paused.

And rates staying the same is bad for stocks as it can slow down economic growth.

What should we do?

The recent drop means there are some tech stocks on sale right now.

And these are the best ones.

Meta Platforms (ticker: META) is the parent company of popular social media sites Facebook and Instagram.

But the last 6 months haven’t been as good for Meta compared to other tech stocks.

Meta’s stock price is down over 5% since May and more than 20% lower than in September.

The biggest reason was Meta missed earnings expectations at the end of October, which sent the stock tumbling by double-digits in a single day.

But the miss was because of an unforeseen tax charge on Meta’s income.

It’s not great, but it certainly isn’t a concern about the operations of the company.

And Meta’s current Return on Equity of 32% is higher than its industry and historical average.

Automatic Data Processing (ticker: ADP) is a massive payroll software company.

If an organization or business is paying people, it’s probably using ADP software to make it work.

And despite revenues and income continuing to climb, ADP’s stock price is down more than 20% from its highs in June.

Only a handful of software companies are beating ADP’s Return on Equity of 70%.

Plus, ADP’s price-to-earnings ratio is also only 25x, which is lower than its historical average of around 30x.

Last up is Ubiquiti (ticker: UI), which manufacturers network products providing internet access.

Ubiquiti’s stock price is down 30% so far in November.

The main reason for the drop is the company's slower sales growth for the 3rd quarter.

Slowing revenue growth is concerning, but margins were higher and earnings grew, so the drop in stock price is an overreaction.

Plus, Ubiquiti’s net margin of 28% is one of the highest in the entire hardware industry.

What other stocks are you looking at right now?

It’s a great time to buy the dip!