While the US stock market has been hitting new all-time highs, I’ve still been seeing buying opportunities. That’s because plenty of top stocks have actually experienced significant share price pullbacks in the last few months and have been trading way off their 52-week highs.
In October, I took advantage of some of this share price weakness and bought two US tech stocks for my Stocks and Shares ISA. Here’s a look at the two companies I invested in.
Powering the digital revolution
The first tech stock I bought for my ISA in October was ASML (NASDAQ: ASML). It’s one of the world’s top manufacturers of semiconductor-making equipment and a leader in the lithography space (lithography is the process of printing patterns of electronic circuits onto silicon). I initiated a position here around the $740 mark.
There are a few reasons I’m bullish on ASML. The first is that governments around the world are looking to boost domestic semiconductor production in order to ease supply chain challenges. In the US, for example, the government is going to support Taiwan Semiconductor Manufacturing Company in building a $12bn manufacturing plant. I think this trend should benefit ASML because these new plants are going to require a ton of manufacturing equipment.
The second reason I’m bullish on ASML is that demand for semiconductors – which power almost all modern electronic devices including smartphones, laptops, and electric vehicles – is likely to rise significantly in the years ahead as the world becomes more digital. Already, demand is sky-high today. However, as new technologies such as 5G, autonomous vehicles, and artificial intelligence are rolled out, demand for chips is likely to increase further.
There are risks here, of course. One is the stock’s valuation. When I bought shares, the stock was trading on a forward-looking P/E ratio of about 47. That doesn’t leave a huge margin of safety.
However, I’m comfortable with the higher valuation. ASML basically enjoys a monopoly position in the lithography equipment market (around 85% of global revenues) so I think it’s worth a premium to the market.
400m users worldwide
The other US tech stock I bought for my Stocks and Shares ISA last month was PayPal (NASDAQ: PYPL). Its share price pulled back after it came to light that the company was looking at buying Pinterest (it has since declared that it’s not pursuing this deal). I bought some shares at around the $242 level.
The reason I bought PayPal is that I expect it to benefit from the growth of e-commerce over the next decade. When online retailers offer PayPal as a checkout option, consumers are nearly three times as likely to complete their purchases. So retailers really can’t afford to ignore the company.
It’s worth noting that according to Juniper Research, digital wallet spending could exceed $10trn globally by 2025, up from $5.5trn in 2020. I think PayPal, with its user base of over 400m customers, is likely to benefit from this growth.
Like ASML, this stock has a higher valuation. When I picked up the shares, the forward-looking P/E ratio was around 50. This valuation carries risk. If future growth is disappointing, the stock could underperform.
Overall however, I think the long-term risk/reward proposition here is attractive. I’m optimistic that the company can continue to generate solid growth in the years ahead.
Edward Sheldon owns shares of ASML Holding, PayPal Holdings, and Pinterest. The Motley Fool UK owns shares of and has recommended PayPal Holdings, Pinterest, and Taiwan Semiconductor Manufacturing. The Motley Fool UK has recommended ASML Holding and has recommended the following options: long January 2022 $75 calls on PayPal Holdings. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.
This post was originally published on Motley Fool
