Investors looking to buy quality growth stocks that have been beaten up in the stock market sell-off need look no further than Cathie Wood’s technology-focused funds for ideas. In that vein of thought, I’ve picked out three stocks for consideration. Positioning-technology stock Trimble (NASDAQ: TRMB), industrial-technology stock Teledyne (NYSE: TDY), and Alphabet (NASDAQ: GOOGL) (NASDAQ: GOOG) are all excellent stocks worth looking at.
Trimble’s growth opportunity
Positioning-technology company Trimble’s origins lie in helping customers with positioning. Examples include geospatial mapping, pinpointing positioning on construction and infrastructure projects, or simply monitoring trucking fleets.
However, given advances in analytical technology and digital modeling, the company has an opportunity to become an increasingly important part of its customers’ daily workflow and decision-making processes. By doing so, it can generate significant cost savings and help reduce waste.
For example, trucking-fleet routes can be optimized, farmers can use precision agriculture to tend the land precisely, and construction and infrastructure projects can be completed with less time and energy wasted.
These initiatives imply growth in Trimble’s hardware and, more importantly, its higher-margin software. All told, the company has revenue-growth and margin-expansion opportunities. It also has a high degree of recurring revenue, giving it earnings stability throughout the economic cycle.
All of these reasons are why Trimble is a no-brainer stock to buy for 2023 and also why it’s Wood’s second-largest position in the ARK Autonomous Tech. & Robotics ETF (exchange-traded fund).
Teledyne, imaging the future
In an information age where advances in analytics and digital modeling (as discussed above) mean data can be used more productively, it’s becoming increasingly important to “sense, analyze, and distribute information.” That’s where Teledyne comes in.
Around 57% of its revenue comes from digital imaging (high-performance cameras, sensors, and systems), which are often used in industrial processes for quality control and defense industries. Its instrumentation segment (23%) provides test equipment, monitoring, and control instrumentation across various industries. Aerospace and defense (12%) provide electronic components and communications equipment, while engineered systems (8%) sell into the space, energy, and defense markets.
The company was transformed following the $8.2 billion (including net debt) acquisition of Flir in 2021. The deal significantly expanded Teledyne’s imaging capability.
Given Teledyne’s exposure to attractive markets in 2023 — namely aerospace, space, and defense (around 26% of its sales go to the U.S. Government, principally, the Department of Defense) — and its long-term growth prospects in areas like environmental monitoring, ocean science, and sustainability, the company stands well-positioned to deal with any slowdown in the industrial sector in 2023 and beyond.
Wood holds Teledyne in two funds — the ARK Autonomous Tech. & Robotics ETF and the ARK Space Exploration & Innovation ETF.
Alphabet’s cash flow is compelling
There’s a strong case for buying stock in Google-owner Alphabet, but I’m not sure it’s the same reason why Wood holds it. Given the ARK funds’ growth orientation, Wood is likely looking at the fast-growing (but currently unprofitable) Google Cloud computing services business. The investment in Google Cloud is supported by the astonishing earnings and cash flow generation at Google Services (search, YouTube ads, Google network, and “other”).
It’s a powerful combination, and Google’s seemingly unassailable position in search across various devices gives it the kind of business moat other companies only dream of.
Based on Wall Street analyst consensus, Alphabet is set to generate an incredible $223 billion in free cash flow in 2022-2024 — enough to buy Boeing and still have $100 billion in change. It’s also equivalent to 18% of Alphabet’s market cap. As such, Alphabet (held in the ARK Autonomous Tech. & Robotics ETF) is an excellent value stock wrapped up in a growth-stock’s clothing.
If Alphabet is, indeed, a value stock generating huge amounts of cash, it’s somewhat puzzling that the company has no plans to pay a dividend yet, and it’s hard not to think that pressure will build on the issue. The company has been making layoffs this year and cutting costs in the process. That’s not the typical behavior of a growth-orientated company with huge amounts of cash at its disposal. Instead, Alphabet should, arguably, be taking advantage of the slowdown to invest in growth initiatives.
Its advertising revenue will surely come under pressure in a slowing economy, but the opportunity to hire high-quality staff (and invest for growth) is much better in a downturn. It’s time for Alphabet to pay a dividend.
10 stocks we like better than Trimble
When our award-winning analyst team has a stock tip, it can pay to listen. After all, the newsletter they have run for over a decade, Motley Fool Stock Advisor, has tripled the market.*
They just revealed what they believe are the ten best stocks for investors to buy right now… and Trimble wasn’t one of them! That’s right — they think these 10 stocks are even better buys.
*Stock Advisor returns as of January 9, 2023
Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. Lee Samaha has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Alphabet. The Motley Fool recommends Teledyne Technologies and Trimble. The Motley Fool has a disclosure policy.