Federal Reserve officials are still persistent on hiking interest rates in the coming months amid inflationary pressures in the U.S. This is a crippling headwind for most tech stocks, as their valuations are tied to future growth, and thus become less attractive investments compared to bonds when rates increase.
The possibility of interest rate hikes sending the economy into a recession is also making investors more cautious about tech companies that have relied for decades on debt to finance their growth.
As a result, tech executives across the country are trying to balance profitability with growth. In these times, the best tech stocks are the ones with strong financials and fast-growing markets — propelling the company to grow faster than the economy and ensuring that the company can finance its growth.
Although macroeconomic headwinds persist, here are three winning tech stocks that fulfill these criteria to make you the millionaire next door.
Rivian (NASDAQ:RIVN) is an American-based EV company, producing SUVs, trucks and vans. It debuted at $78 a share but has since fallen to $14.
A few factors worry investors. First, the company is unprofitable, losing $1.35 billion in the most recent quarter. Second, the supply chain has become a huge issue for many EV companies. Last year, Rivian had to halve its production target to 25,000 vehicles, due to supply chain issues. However, there are good reasons to believe Rivian is poised to turn around.
Rivian has $12 billion in cash and equivalents. Even at its current burn rate, the company still has about eight quarters before needing to raise capital. Furthermore, Rivian says that it expects to see gross profit by 2024, which allows it to avoid LCNRV charges and improve margins. The company is already showing signs of improvement, as the $1.35 billion net loss last quarter was a decrease from $1.59 billion in the same quarter last year.
As for production, Rivian kept its 50,000 vehicle production goal for 2023, which is impressive considering a similar EV company, Lucid (NASDAQ:LCID), lowered its production goal due to a difficult supply chain. In fact, there have been rumors that Rivian internally is expecting to produce 62,000 vehicles this fiscal year. In addition, the delivery time on the website is now 2 weeks, compared to 4-16 weeks previously. This suggests the company has figured out more efficient delivery methods.
Rivian currently is attractively priced due to these investor concerns and trades at 3x forward P/S, lower than Tesla’s 5.3x and Lucid’s 14.83x. Investors may be undervaluing the stock and missing out on the tremendous upside of the company.
Google is strategically positioned in a rapidly expanding market as consumers are demanding data-driven services and businesses are rapidly digitalizing. It reported robust quarterly earnings of 20% YOY revenue growth, a 27.27 P/E ratio, a 24.92% operating margin, and a healthy balance sheet paired with low debt and a significant cash reserve.
One notable catalyst for Google’s growth is its likely expansion into the burgeoning metaverse. Google’s vast experience with virtual and augmented reality, digital advertising, and cloud services places it in an advantageous position to make a significant impact in this space. We’ve seen the company’s take on augmented reality technology from its development of Project Iris. The metaverse is a trillion-dollar opportunity that Google has the resources to develop for and dominate in.
Furthermore, Wall Street is bullish. Yahoo Finance reports 9 analysts having a mean price target of $129.44 with the range spanning from $120 to $145. Notable firms are maintaining their buy rating on GOOG stock, with no downgrades in sight for this company.
AT&T (NYSE:T) is a giant in the telecommunications and media industry. Even though the stock is down 17% in 2023, there are long-term growth prospects for AT&T. The telecom industry is undergoing an unprecedented transformation with 5G fostering faster, more reliable, and low-latency communications. The rising consumer demand for high-speed internet and streaming content is also spurring growth for these industries. AT&T is ideally positioned to capitalize on these trends given its vast network and content assets.
AT&T’s strong financial metrics are particularly an attractive choice for income investors as the company presents itself with strong free cash flow, a forward P/E of 7x, and a competitive dividend yield of over 7%. On top of this, revenue growth remains steady, underpinned by the solid performance of its wireless, broadband and media segments.
A key catalyst is AT&T’s strategic move in the area of the internet of things and edge computing, which is expected to grow at a 26.1% CAGR through 2030. AT&T’s strong network capabilities combined with its investment in IOT technologies have positioned it to provide robust, industry-specific IOT solutions.
Lastly, Wall Street maintains a bullish view of T stock’s valuation. Yahoo Finance reports 21 analysts having a mean price target of $20.83 with the range spanning from $9 to $28. Notable firms have been maintaining their buy rating on T stock, with no downgrades in sight for this company.
On the date of publication, Michael Que did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.