The stock market has done incredibly well in 2024 and Standard & Poor’s 500 It’s up 25% year-to-date. Fortunately for investors looking to inject capital into the market, things calmed down in December, with the S&P down 1% since the beginning of the month. Looking deeper, some companies are facing challenges that have caused their stock prices to decline.
Hoping for a discount in stock price is only part of the equation for finding the best stocks to buy. Investors should also look for companies with competitive advantages and strong track records of success. The short-term challenges have created opportunities to buy shares in these two companies at a discount.
For investors with $1,000 to put to work in the market, buying one or both of these stocks could be a wise decision.
If you opened a PDF file, you used a Adobe (Nasdaq:ADBE) project. Although this ubiquitous file type may be Adobe’s most popular application, the company’s creative suite is the primary driver of financial results. Products like Photoshop and Premiere Pro are industry standards for creative fields, even as competition increases over time.
Evidence of Adobe’s position in the market is evident in its financial results. Like all businesses, there are sometimes short-term bumps in the road, but over the long term, Adobe has been remarkably consistent. Consider revenue, net income, and… Free cash flow Over the past five years.
While Adobe’s track record is impressive, the investment is about the future and the biggest potential disruptor to Adobe’s market dominance artificial intelligence (Amnesty International). Many tasks that creators might do within Adobe products can already be automated by AI, and AI’s capabilities are growing every day.
Adobe has chosen to embrace this new technology and has worked hard to integrate its AI product, Firefly, into its software suite. Instead of looking at AI as a replacement for Adobe products, the company believes it can be an adjunct to the creative process by taking care of some of the more menial tasks, freeing up the creator to be creative.
Time will tell how successful this strategy will be, and the market seems to be waiting to find out. Adobe is currently trading for a price-to-earnings (P/E) ratio of 36. Although this is not a cheap multiple, it is lower than Adobe’s five-year average P/E ratio of 47. For investors who believe… That Adobe will be able to harness the power of AI, rather than being disrupted by it, at today’s price could be a bargain.
Very similar to the Dutch company Adobe ASML (Nasdaq: ASML) It is a leader in its industry. ASML manufactures the lithography machines needed to manufacture all semiconductor wafers. When it comes to the most advanced semiconductors, ASML is the only company in the world that makes the extreme ultraviolet (EUV) lithography machines needed for these cutting-edge chips.
With this kind of competitive advantage, one would expect ASML to trade for a very rich valuation, which is usually the case. However, cyclicality in the semiconductor industry (AI chips notwithstanding) combined with geopolitical restrictions on where advanced semiconductors can be sold have thrown more uncertainty into the business than usual. This has led to ASML trading at roughly the same discount to its five-year average P/E ratio as Adobe.
ASML PE ratio Data by YCharts
ASML’s management believes that the challenges it faces will continue until 2025 before seeing any recovery. While this could mean further declines for the stock, ASML’s discount now represents a compelling buying opportunity for a company that will be at the center of one of the hottest industries for years to come.
ASML expects total semiconductor sales to grow at a 9% compound annual growth rate between 2025 and 2030, providing insight into the demand waiting on the other side of this cyclical downturn. Perhaps more importantly, the company believes semiconductor sales for servers, data centers and storage will be double overall sales.
This means that there will be continued demand for more advanced UV ASML devices, as this is where AI spending should be focused.
Before buying shares in ASML, consider this:
the Motley Fool stock advisor The analyst team has just defined what they think it is Top 10 stocks For investors to buy now… and ASML was not one of them. The 10 stocks that were discounted could deliver huge returns in the coming years.
Think when Nvidia I prepared this list on April 15, 2005… If you invested $1,000 at the time of our recommendation, You will have $842,611!*
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Jeff Santoro He has positions at ASML and Adobe. The Motley Fool has positions in and recommends ASML and Adobe. The Motley Fool has Disclosure policy.
The best stocks to invest $1,000 in now Originally published by The Motley Fool