The market has been brutal in 2022. As we are halfway through the year, the S&P500 is down 19.7% since the start of the year, and the Nasdaq-100 the index is down 29%. Investors are worried about rising inflation, the Federal Reserve raising interest rates and the possibility of the US economy sliding into a recession.
All of these things could have a negative effect on corporate earnings, and therefore stock prices. However, if you are an investor with a time horizon of five to ten years or more, now is a great time to find high-quality stocks and buy them at a discount.
Here are two cheap stocks to buy during this current market sell-off.
First, a stock that many investors are aware of, Alphabet (GOOG -0.27%). The parent company of Google, YouTube, Android and Google Cloud is one of the largest companies in the world, with a market capitalization of $1.43 trillion. Over the past 12 months, it has generated $270 billion in revenue, mostly from advertising on Google and YouTube properties.
In the first quarter of this year, Alphabet’s revenue reached $68 billion, up 23% year-over-year. This growth comes from all of Alphabet’s business lines, including Google Search, YouTube and Google Cloud. Operating profit was $20 billion, down from $16.4 billion a year ago, and that’s with Google Cloud and the Other Bets segment which both burned about $1 billion in the trimester. If/when these segments return to profitability, this will be an easy way for Alphabet’s bottom line to grow in the years to come.
At the current share price, Alphabet has a free cash flow yield of 4.7%. Free cash flow yield measures how much cash a company generates for you as a percentage of its market capitalization and is the inverse of the price to free cash flow (P/FCF) ratio. Alphabet is currently yielding around the market average. With Alphabet’s strong growth track record, Google Search dominance, and the potential for Google Cloud and Other Bets to start generating cash flow positives in the future, it looks like a cheap price to buy the action, as long as you plan to hold for many years.
The second stock on our list is Autodesk (ADSK 1.10%). Autodesk has a market capitalization of $37.8 billion, significantly lower than Alphabet’s, but still one of the largest in the world. The company offers various software products to the architecture, engineering and construction (AEC) industries.
This includes design tools like AutoCAD and Revit, a mechanical and manufacturing software platform called Fusion 360, and construction workflow tools in Autodesk Build. It even serves the media and entertainment markets with its 3D animation software called Maya.
Given the increased digitization of all these different industries, Autodesk has a decades-long tailwind that should keep its financial growth at a steady pace each year. Autodesk’s first-quarter revenue grew 18% year-over-year to $1.17 billion, driven by double-digit growth across its five product categories. For the full year, he expects revenue to grow 13% to 15% year over year to around $5 billion.
Since software products have such high margins, Autodesk converts a ton of its revenue into free cash flow. Currently, it is trading at a free cash flow yield of 4.1%, which is slightly below the market average. With the company on track to grow revenue by 10% over a year in the foreseeable future, that makes Autodesk stock an easy buy at these prices, as it should generate a ton of cash for shareholders during this decade.