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Technology stocks have been beaten down in 2022’s bear market, creating unique opportunities for investors in undervalued companies with strong fundamentals.
In particular, shares of innovators like Salesforce, Enphase Energy, and 3M look attractively priced amid the broad tech sell-off. Savvy investors can capitalize on the discounts to accumulate quality stocks poised for gains as execution drives growth.
This article will analyze why these stocks look compelling for long-term investors seeking overlooked value plays.
Table of Contents:
- The Bear Market Creates Buying Opportunities
- Salesforce Refocuses on Margin Expansion and AI
- Enphase Energy Pursues Global Growth
- 3M Executes Spin-Off Plan and Legal Settlement
- Attractive Valuations Offer Long-Term Upside
- Key Takeaways for Investors
The Bear Market Creates Buying Opportunities
After a multi-year bull market, 2022 brought a dramatic reversal of fortune. The S&P 500 entered bear market territory in June, falling over 20% from highs. Rising interest rates, inflation, and recession fears have crushed valuations across the stock market.
But this pullback has been indiscriminate, hammering innovators and low-quality companies alike. For long-term investors, the tech wreckage offers a chance to buy excellent businesses at bargain prices for the next bull cycle.
Salesforce Refocuses on Margin Expansion and AI
Salesforce pioneered the software-as-a-service (SaaS) model for customer relationship management (CRM) solutions. The company provides cloud-based apps for sales, service, marketing, analytics, and more used by businesses worldwide.
Salesforce holds roughly 20% share of the $120 billion CRM software market. Over 150,000 companies use Salesforce, including 94% of Fortune 100 firms.
Despite dominance in its industry, Salesforce stock sits 30% off highs. This brutal sell-off stemmed from decelerating revenue growth as the CRM market matures.
But Salesforce is responding with an impressive revamp. Management launched a restructuring aimed at boosting profitability and investing for the future.
As part of this, Salesforce reduced headcount by 10% to trim costs. The company also exited unprofitable markets and doubled down on the most promising segments.
This renewed focus already bears fruit. In Q2 2022, Salesforce’s non-GAAP operating margin hit 31.6% — up an impressive 10 percentage points year-over-year. Margin expansion is a key priority going forward.
At the same time, Salesforce pushes the boundaries of artificial intelligence (AI) technology. The company ingests over 6 trillion customer data records, providing immense potential for AI-enabled insights.
Salesforce embeds AI throughout its platforms, allowing for more personalized, automated, and predictive experiences. As AI capabilities grow, it strengthens competitive moats around Salesforce’s cloud offerings.
The upcoming Dreamforce conference presents an opportunity to highlight Salesforce’s latest innovations on both the profitability and AI fronts. Salesforce remains a leader in ethical applications of emerging technology to drive digital transformation.
Enphase Energy Pursues International Expansion
Enphase Energy is a leading supplier of solar microinverters and batteries for residential energy systems. Its technology enables optimized energy generation and storage for homes and businesses.
Despite Enphase’s leadership, shares have sunk 46% from all-time highs near $300. The pullback reflects market volatility, inflation/supply chain challenges, and a sector rotation away from pandemic winners.
But zooming out, Enphase has executed tremendously over the past several years. Revenue grew from $316 million in 2018 to nearly $1.4 billion over the last 12 months. Gross margins expanded from 29.7% to an impressive 40.4% over that period.
This growth stems from Enphase’s relentless product innovation and international expansion. A prime example is the new IQ8 solar microinverter launch in 2021. IQ8’s breakthrough technology works even during grid outages, a key differentiation.
Enphase is also aggressively targeting high-potential markets abroad. In Q2 2022, 41% of revenue came from Europe and Australia. Management sees substantial headroom for further penetration overseas.
Specifically, Enphase plans new product launches across Europe to build on recent momentum. At the same time, emerging solar markets like India and Brazil present untapped opportunities.
Of course, Enphase faces risks from supply chain disruptions, raw material inflation, and competitive threats. But its efficient manufacturing and strong pricing power help overcome these hurdles.
Thanks to its technology leadership and global growth roadmap, Enphase remains well-positioned as the renewable energy transition accelerates worldwide. The company’s discounted stock price offers an attractive entry point.
3M Executes Spin-Off Plan and Legal Settlement
3M Company operates as a diversified industrial conglomerate, selling over 60,000 products across consumer goods, healthcare, manufacturing, and safety categories.
Shares of 3M have fallen over 25% from all-time highs as slowing growth weighed on investor sentiment. But 3M is proactively restructuring to unlock value and emerge stronger.
Importantly, 3M plans to spin off its healthcare segment, which generates around 25% of total sales. This tax-free transaction aims to close by late 2023.
The strategic move will allow 3M to concentrate more resources on its other divisions. In turn, the new healthcare company can pursue growth with flexibility and focus of its own. Goldman Sachs estimates the spin-off could unlock $10 per share in value for 3M shareholders.
3M also signed a landmark $10 billion settlement in February to resolve legal claims around PFAS litigation. PFAS refers to “forever chemicals” used in 3M’s products that can contaminate groundwater.
While costly, the settlement removes a major overhang by establishing legal certainty. Moreover, 3M now aims to exit all PFAS manufacturing by end of 2025, aligning with ESG priorities.
Along with its restructuring and spin-off plan, 3M’s efforts to resolve environmental concerns and optimize its portfolio position it for a brighter future. The stock looks compelling at current valuations.
Attractive Valuations Offer Long-Term Upside
Thanks to the broad tech sell-off, Salesforce, Enphase, and 3M all trade substantially below recent highs despite strong underlying business performance.
This divergence between beaten-down stock prices and fundamentals can signal overreaction. It presents opportunities for long-term investors to accumulate quality names at discounts.
Though near-term volatility will likely persist, execution of strategies around growth, margins, and corporate structure should unlock significant upside over time.
Moreover, all three firms boast leading positions in massive addressable markets ripe for disruption. Salesforce dominates the CRM software space. Enphase is winning share in the fast-growing solar industry. And 3M enjoys deep roots across diverse industrial categories.
Their compelling financials also indicate value. Salesforce trades at just 5.4x forward sales compared to its 5-year average of 8.3x. Enphase’s P/E of 79 seems reasonable given its projected EPS growth rate of 42% next year. And 3M’s healthy 3% dividend yield adds income potential.
For investors with multi-year time horizons, accumulating shares of Salesforce, Enphase, and 3M during temporary weakness seems likely to yield big returns during the next bull market and beyond.
Key Takeaways for Investors
Here are the key points for investors evaluating these opportunities:
- The bear market has indiscriminately sunk many high-quality technology stocks, presenting unique buying opportunities.
- Salesforce, Enphase, and 3M are executing well fundamentally but trade at major discounts due to the tech sell-off.
- Salesforce is boosting margins through restructuring while advancing AI capabilities to extend its CRM dominance.
- Enphase aims to replicate its solar technology success in high-potential international markets, especially Europe, India, and Brazil.
- 3M looks to unlock value through its upcoming healthcare segment spin-off and PFAS settlement.
- Attractive valuations provide favorable risk/reward profiles for long-term investors.
- Leading positions in massive addressable markets give these stocks significant upside potential over the long run.
The recent tech weakness offers a rare chance to buy stakes in excellent companies like Salesforce, Enphase, and 3M at bargain valuations. Savvy investors who seize the opportunity may be rewarded handsomely in the coming years.