Technical Selling: Two growth stocks to buy and one to sell

The stock market never goes up in a straight line. Volatility is a common topic in investing, which is why it is important to focus on the long term.

Since hitting an all-time high near the end of 2021, it has become Nasdaq 100 The technology index is down more than 20%, sending it into bear market territory. It then bounced up more than 10% during March before resuming its decline this week. It’s evidence of how difficult it is to chase short-term market gains.

Amid the selling, some tech stocks fell significantly, providing an attractive buying opportunity for long-term investors. Here are two that are worth picking up right now, and one that you should avoid.

Image source: Getty Images.

First stock bought: DocuSign

DocuSign (DOCU -0.75% ) It has been one of the main beneficiaries of the pandemic environment, as its platforms facilitate remote work. It is best known for being the leader in digital signature technology, but it has expanded into new segments in the field of digital documents by utilizing advanced tools such as Artificial Intelligence (AI).

DocuSign Agreement Cloud is a collection of more than 12 applications designed to help organizations manage contracts from initial drafting to signing as well as maintain them over time. DocuSign Insight, for example, uses artificial intelligence to analyze agreements to identify potentially problematic clauses, and even opportunities, helping to save time as well as legal expenses. Agreement Cloud is the ultimate digital partner for businesses that handle a large volume of legal documents.

DocuSign now has approximately 1.17 million paying users, with over 1 billion people on the platform worldwide. The company just announced its results for the full 2022 fiscal year, and while some of the pandemic tailwind faded with the reopening of the community, DocuSign still managed to grow its revenue 45% to $2.45 billion over fiscal 2021. The company is also profitable Also, its non-GAAP earnings per share amounted to $1.98 during fiscal 2022, which was a 120% jump year over year.

DocuSign stock is down 67% from its all-time high, in part because sales growth is expected to stabilize in fiscal year 2023. But analysts expect further profit growth, and as remote work becomes more popular even after the pandemic, this is a great opportunity To enter stocks for the long term.

An IT professional analyzes a laptop while it is connected to a server.

Image source: Getty Images.

2nd stock to buy: Alphabet (Google)

This company needs little introduction, as you may have used their services to find this particular article. the alphabet (The Google -1.80% )(The Google) -1.91% ) It is the parent company of Google, and it is one of the highest quality companies in the stock market. It is also one of the most valuable, with a market capitalization of $1.8 trillion.

For these reasons, many investors keep their stocks with a tight grip, so Alphabet stock is down just 10% from its all-time high right now. But still, buying a dip is worth buying in the long run. The organization has diversified beyond its popular search platform alone and boasts a group of companies that tend to perform well in most economic environments.

For example, its Google Cloud platform offers a range of services, including collaborative documents, storage, and even artificial intelligence and machine learning tools. The cloud segment represented only 7.4% of Alphabet’s total $257 billion in revenue during 2021, but it grew 47% year over year, which was faster than the 41% rate for the entire company.

Overall, Alphabet stock is cheap now, with a P/E of only 24, which is a 27% discount for the Nasdaq 100 tech index. And during tough times in the market, owning a stock is extremely safe for its diversity, growth, and profitability.

A person using a laptop and smartphone with a neutral look on his face.

Image source: Getty Images.

Stocks to sell: Twitter

If you’ve paid any attention to the markets this week, you’ve probably heard of them Tesla CEO Elon Musk buys a 9.1% stake in the social media platform Twitter (TWTR -3.75% )As well as appointing him to its board of directors. Twitter stock surged as much as 38% once the news was revealed, which raises a valid question: What value can one person bring to the table?

Elon is pushing to make some changes to the platform, including an edit button (which was already in the works, according to the company) and a greater commitment to free speech. This may lead to more usage and engagement, but one of Twitter’s biggest problems has been monetization compared to competing social media platforms like ID pads‘ Facebook.

During the height of the pandemic, Twitter set a goal of reaching $7.5 billion in annual revenue by the end of 2023, with 315 million monthly active users (MAU). It’s been two years, and the review of the past two years has cast some doubt as to whether this is even possible. From 2019 to 2021, the company’s revenue grew from $3.4 billion to $5 billion, and its average earnings increased from 152 million to 217 million. That’s a two-year growth rate of 47% for revenue and 42% for MAU.

To achieve its goals, the company will have to accelerate two-year growth rates to 48% and 45%, respectively, between now and the end of 2023. That doesn’t sound too far fetched, but Twitter won’t benefit from it. The stay-at-home economy is driven by the pandemic – and the impact is already evident, with MAU growing just 13% from 2020 to 2021.

Twitter also incurred net losses in both 2020 and 2021, so it struggled to turn the ideal conditions for its platform into profits for investors. On that note, Twitter’s stock is trading at a sales multiplier of 8. Compare that to Alphabet stock, which trades at a price-to-sales multiplier of 7, has a more diversified business, and is essentially printing money in terms of profitability.

Simply put, Twitter may be overrated, and Elon’s rise can be used as a selling opportunity.

This article represents the opinion of the author, who may disagree with the “official” recommendation position of the Motley Fool Premium Consulting Service. We are diverse! Asking about an investment thesis — even if it’s our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.

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