Market sell-off: 2 safe tech stocks to buy now and hold forever

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Stocks, broadly speaking, have been hammered into 2022. At this point, only two S&P500 sectors have been trading in the green since the start of the year: energy and utilities. But the big gains for many players in the energy sector are unlikely to persist over the long term due to the continued shift away from fossil fuels, and utility stocks are seen as defensive – they generally don’t generate the returns high growth rates sought by many investors. .

These types of gains can often be found in the tech sector, but only a handful of companies in this group can be considered safe in times like this – among them, Microsoft (MSFT -1.27%) and Apple (AAPL -1.51%). They may not be immune to market turbulence, but they have proven business models with decades of success under their belts. This means that when the economy rebounds, these companies are likely to be among the first to reach new heights. Not only could they help investors weather the current volatility, but these two stocks also look like solid long-term bets for any portfolio.

1. Microsoft serves both consumers and businesses

Most people know Microsoft for its Windows operating system for computers and its Office 365 digital document suite. After all, billions of people around the world use these products in personal and professional settings. But the company has expanded far beyond its roots and into areas its early backers probably didn’t expect, amassing a market valuation of $1.7 trillion.

Having diversified sources of income is extremely beneficial for a business during an economic downturn. Right now, consumers are tightening their belts on discretionary spending due to high inflation and rising interest rates, so Microsoft is seeing weaker demand for hardware like its Surface laptops and its Xbox game consoles. But its smart cloud segment is taking over significantly and now contributes the largest share of the company’s revenue.

It is driven by the Azure platform, which helps businesses operate in the cloud. It offers solutions such as data storage, virtual machines, and even cybersecurity. As more enterprises adopt this technology, the cloud is on track to become a $1.5 trillion annual opportunity as early as 2030, according to an estimate from Grand View Research.

In Microsoft’s fiscal year 2022 (which ended June 30), Azure’s revenue grew by approximately 45% (based on a calculated average of reported quarterly growth reports, as Microsoft does not publish actual Azure revenue) while the rest of its business grew only 18%.

Still, while Azure is helping Microsoft weather the current unstable economic conditions, growth in its other segments will likely accelerate once interest rates stabilize. For this reason, it’s important to zoom out and focus on the big picture because, as the chart below suggests, Microsoft has been a fantastic long-term investment.

With Microsoft stock currently down 30.6% from its all-time high, this could be a great opportunity to buy ahead of its next wave of potential growth.

2. Apple continues to innovate and diversify

Apple is the world’s largest public company with a valuation of $2.4 trillion, and it just launched its latest smartphone, the iPhone 14. As exciting as that sounds, it highlights one of ( minor) weak points of the company. As a maker of high-end consumer electronics, Apple is highly exposed to the health of the economy. But it has diversified its revenue base in recent years by offering a portfolio of services, and this segment of its business is currently driving the company’s growth.

These services include Apple Pay, Apple TV+, Apple News, and Apple Music, to name a few on an expanding list. The main advantage for investors is that the services segment offers a gross profit margin of 71%, compared to 52% for Apple’s hardware products. Simply put, it’s more profitable to provide subscription-based services to customers than to sell them devices, and recurring revenue makes scaling easier.

During the company’s third quarter of fiscal 2022 (which ended June 25), its services segment accounted for 23.6% of the company’s $82.9 billion in total revenue. In the previous year period, it was 21.4%, so it is gradually becoming a larger part of the overall business. In the third quarter of the fiscal year, services grew 12%, against a 1% contraction in hardware revenues.

That said, the release of products like the iPhone 14 and the new rugged Apple Watch Ultra will likely boost sales during the Christmas season. Both devices come with new feature sets. Of particular note, Apple has done a major internal redesign of the iPhone 14 that has made it easier for technicians outside the Apple ecosystem to repair them, a cost-effective option that could make the devices even more appealing to people. consumers.

With Apple stock down 17.4% from its all-time high, this could be the opportunity some investors have been waiting to buy shares at a discount.

Antoine Di Pizio has no position in the stocks mentioned. The Motley Fool holds posts and recommends Apple and Microsoft. The Motley Fool recommends the following options: $120 long calls in March 2023 on Apple and short calls $130 in March 2023 on Apple. The Motley Fool has a disclosure policy.

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