Do you have $5,000? 2 tech stocks to buy and hold for the long term
The Nasdaq-100 is an index monitoring some of the largest technology companies in the world. So far in 2022, the index is down more than 32% with some of the major stocks in the index, like Metaplatforms and netflix, decrease of more than 50%. This index, which had a high price-to-earnings ratio of 35 a year ago, now boasts a much more affordable P/E of 23. That’s a huge swing in the valuations of these tech companies.
If you have $5,000 that isn’t needed to pay bills, bolster an emergency fund, or reduce short-term debt, now might be a great time to buy tech stocks, as many are trading at lows. reduced prices. I would consider spending this spare cash on two tech stocks that are currently trading at a discount – electronic arts (EA 1.83%) and Wix.com (WIX 2.90%). Both are excellent buy-and-hold candidates and deserve further investigation. Here’s why.
1. Electronic Arts: riding the gaming boom
You may know Electronic Arts (EA) as the publisher of the popular EA Sports games. These include FIFA Soccer, Madden NFL, and others. These offers have virtual monopolies on sports simulation games. Annual game releases and growth in in-game purchases make these sports franchises highly profitable, and they’re the key factor behind why EA shares have risen around 25,000% since their IPO a year ago. a few decades.
EA has built or bought many non-sports game franchises over the years, including The Sims, Apex Legendsand Battlefield. These operate in more competitive environments than sports games, but they offer EA great diversification as it attempts to grow its revenue bases across console, PC and mobile. For example, the hit game Apex Legends just launched a mobile title called Apex Legends Mobile which gets tens of millions of downloads worldwide.
EA’s business should continue to grow as it benefits from the tailwind in video game spending. Third-party estimates vary, but the general consensus is that the industry will experience double-digit annual growth, growing from just over $200 billion in annual spending to over $300 billion before the end of the decade. . For one of the biggest game publishers in the world, this is a goldmine of revenue opportunities to tap into.
This year, management is asking EA to generate $1.6 billion to $1.65 billion in operating cash flow, which is the best measure of profits for the company due to the odd recognition income that accompanies video game companies. With a market capitalization of $34 billion, that gives the stock a price-to-operating cash flow (P/OCF) ratio of around 20 (if it hits the top of its forecast). Given that the company has such a strong track record of growth, this seems like a great price to buy EA stock and hold onto for many years.
2. Wix.com: Stable, High-Margin Subscription Revenue
Wix is one of the largest vertically integrated website builders. It competes with companies like Shopify and square space and the company continues to take market share in website development this decade thanks, in part, to its streamlined model. In 2013, Wix was estimated to hold less than 0.1% market share in content management systems (the back-end of website development). Today, this share is 3.4%.
These market share gains have helped Wix build a significant base of paid subscribers over the past decade, reaching 6 million by the end of 2021. In Q2, its creative subscription business reached 1.05 billion. dollars in annual recurring revenue (ARR) with an impressive gross margin of 74%.
Wix isn’t very profitable at the moment due to its heavy upfront investments in e-commerce, payments, and tools for web design agencies. However, by 2025, management is aiming for $500 million in annual free cash flow, the best measure of profitability for a software company like Wix. Given the current market capitalization of $4.2 billion, it would be difficult for investors to lose money if Wix hits that mark.
With a simplified model and many different tools for its customers like e-commerce functionality and payment processing, Wix should continue to gain market share over the next five to 10 years, just as it has for the previous 10, and getting closer to its 2025 free cash flow target. Between its super-cheap price and high-margin subscription revenue, Wix has the makings of a great stock to own if you’re holding out for the long haul.
Randi Zuckerberg, former director of market development and spokesperson for Facebook and sister of Meta Platforms CEO Mark Zuckerberg, is a board member of The Motley Fool. Brett Schafer holds positions at Electronic Arts and Wix.com. The Motley Fool holds positions and recommends Meta Platforms, Netflix, Shopify and Wix.com. The Motley Fool recommends Electronic Arts and recommends the following options: $1140 January 2023 Long Calls on Shopify and $1160 January 2023 Short Calls on Shopify. The Motley Fool has a disclosure policy.