The stock market had a terrible 2022, but the technology sector bore the brunt of the pessimism. The Nasdaq-100 tech index declined by 33% for the year, which was its worst annual return since 2008, when the global financial crisis rocked the world economy.
But 2023 is a new year, and there’s a silver lining to last year’s woes: Many stocks in the tech sector are trading at the cheapest levels in more than a decade, so this might actually be a great long-term entry point into the market.
Three of the best opportunities right now might be in shares of Google parent Alphabet (GOOG 1.22%) (GOOGL 1.29%), Uber Technologies (UBER 1.44%), and Meta Platforms (META 1.04%). If I had $1,000 to invest between the three of them, here’s exactly how I’d break it down.
Alphabet (Google): $250
Alphabet stock originally traded as Google. The name change was made in 2015 to reflect the company’s growing diversity beyond the flagship brand. Google Search still generates the majority of Alphabet’s revenue through advertising dollars, but the tech conglomerate now has a thriving video streaming platform in YouTube, a growing cloud services segment, and even a line of hardware products like the Pixel smartphone and Nest home devices.
YouTube will be of particular interest in 2023 as the platform continues to tackle the short-form video craze led by ByteDance’s TikTok. YouTube Shorts has built a monthly user base of 1.5 billion that places it neck-and-neck with TikTok, and Alphabet says it’s working on monetization initiatives to make the new format a financial success, too.
Advertisers often gravitate toward platforms with young audiences, and over 60% of TikTok’s base is under the age of 30, so it’s critical for YouTube to continue investing in Shorts.
Alphabet would get $250 of my $1,000 total investment not just for the quality of its business, but also its current valuation. Its stock is down 39% from its all-time high, and trades at a price-to-earnings multiple of just 18.2, which is the cheapest level since 2014.
Uber Technologies: $250
I’d allocate another $250 to shares of Uber Technologies, the platform technology company dominating the mobility industry, with a side of success in food delivery and now a surging freight business.
Uber was a fast-growing company prior to 2020, but it truly proved its worth during the pandemic when it overcame what seemed like an impossible challenge. Society ground to a halt, crushing its ride-hailing business, which was the core driver of its revenue.
Uber didn’t roll over and accept its fate. It recognized an opportunity in food delivery to not only give consumers access to meals while they were confined to their homes, but to also offer a lifeline to local restaurants that were suffering. Uber Eats quickly became the company’s largest revenue source.
But those times are in the rearview mirror now. Society has mostly returned to normal, and Uber’s mobility business has roared back to life while growth in food delivery is fading and will likely take a back seat to its core business once again in the coming quarters. The point here is that Uber put on an operational masterclass through possibly the most difficult circumstances its business might ever see.
Uber has 124 million monthly active users across its segments. But investors should watch its smallest segment — freight — very closely. Its revenue quadrupled in the recent third quarter of 2022 (ended Sept. 30), and it has already become one of the largest logistics networks in the world.
Meta Platforms: $500
The lion’s share of the $1,000 allocation goes to social media giant Meta Platforms. With globally dominant assets like Facebook, Instagram, and WhatsApp in its portfolio, it’s hard to believe its stock has crashed 63% from its all-time high. But that’s the reality at the moment in light of a weak advertising market and growing competition.
When consumers are spending less money, businesses invest less money marketing to them for fear of a lesser return, and this has caused Meta’s revenue growth to stall. That’s a broader macroeconomic challenge that will likely resolve itself over time. The greater headache for Meta is TikTok — that’s right, YouTube isn’t the only platform facing this threat.
TikTok is sucking ad dollars away from social networks like Facebook and Instagram, so to combat this, Meta has added a new short-form video feature called Reels to its core platforms. Engagement is picking up, and alongside other brand-new features like Candid Stories and Notes, it should help stop users from jumping to competing apps like TikTok.
Meta’s valuation is one of the primary reasons I’d allocate $500 of my $1,000 investment. It trades at an approximate price-to-earnings multiple of just 15 based on its final expected 2022 earnings per share, which is about 39% cheaper than the 24.7 multiple of the Nasdaq-100 index.
Analysts expect Meta’s earnings to shrink in 2023, and that’s part of the reason for the discount. But if the economy recovers and users continue to respond positively to the new features on Facebook and Instagram, advertising dollars should come flooding back. Plus, the company recently committed to cutting costs, and those savings should flow directly to its bottom line.
Meta has over 3.7 billion monthly active users across its platforms, so it remains one of the safest bets in the social media space, especially at its current stock price.
Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister to Meta Platforms CEO Mark Zuckerberg, is a member of The Motley Fool’s board of directors. Anthony Di Pizio has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Alphabet, Meta Platforms, and Uber Technologies. The Motley Fool has a disclosure policy.