Beauty is in the eye of the beholder. And bargain bin is in the eye of the discerning investor.
There are many ways to define and identify a cheap stock, and every definition can serve a specific purpose. On that note, let me show you three top-notch tech stocks that look cheap today -- in three distinctly different ways. One or more might be a good fit for your own portfolio, so let's get to the good stuff.
Rumors of Alphabet's death have been greatly exaggerated
Google parent Alphabet (GOOG -1.55%) (GOOGL -1.45%) is a massive technology leader with a primary focus on online search and advertising. Bearish investors currently worry that artificial intelligence (AI) tools, such as OpenAI's ChatGPT, will steal Google's lunch in the long run, weighing down Alphabet's stock price.
But despite the rise of generative AI, the robust portfolio of Google-branded tools and services remains a dominant force in the digital world. In fact, the Google Cloud service recently reported its first positive operating profit, and the company posted positive top-line growth despite an inflation-inspired downturn in the digital advertising market.
And don't forget Alphabet is a major player in the AI space, too. Many of the online Google tools you use every day, from the search results and ad-spot displays to Google Maps navigation routes and Google Translate language conversion, rely on various types of AI. The Google Bard chatbot may be eating ChatGPT's dust in the early running, but I can't wait to see Alphabet bring its unseen AI arsenal to bear on the AI chat opportunity.
The stock is currently trading 18% below its all-time high from November 2021. If you believe in Alphabet's long-term prospects and its powerful arsenal of AI expertise, this relatively low stock price looks like a great buying opportunity.
Booking Holdings is an underappreciated cash machine
Alright, let's go for a ride. Booking Holdings (BKNG -1.15%) is a leading online travel company helping people and corporations book accommodations, flights, car rentals, and more. The company behind service brands like Kayak and Priceline struggled during the lockdowns and travel restrictions of the COVID-19 pandemic but is springing back to life in recent quarters.
The stock's valuation ratios are perhaps on the high end of reasonable, with a price-to-earnings ratio of 26 and a price-to-sales reading of 5.6. However, you shouldn't stop your analysis there. As it turns out, we are looking at a rip-roaring cash machine here.
Booking Holdings is not just back to its pre-pandemic free cash flow (FCF) level but also setting fresh all-time records.
BKNG Free Cash Flow data by YCharts. TTM = trailing 12 months.
So when you analyze this stock from the perspective of discounted cash flows, you'll find it trades at just 16 times FCF -- and the cash flows are growing as we speak. I ran Booking Holdings through a discounted cash flow calculator, starting from $7.5 billion of trailing FCFs and adopting analysts' consensus bottom-line growth estimate of 25% per year over the next five years.
The calculator kicked out a fair value of $4,650 per share, more than 80% above the actual stock price. So if you base your analysis on cash profits, Booking Holdings looks incredibly undervalued today.
Stitch Fix deserved a correction, not a thrashing
Finally, here's a promising turnaround story for you. Stitch Fix (SFIX 4.01%) is an online personal styling service that delivers personalized clothing selections to its customers' doors. While the company has faced some challenges in recent times, the brutal price cut seems to be an overreaction.
Stock prices are down a staggering 97% from their all-time high in February 2021 and are now trading at just 0.2 times sales. Despite these challenges, Stitch Fix remains debt-free and recently introduced an ambitious cost-cutting program.
Yes, Stitch Fix has lost the momentous top-line growth that made it a market darling in 2021. At the same time, the company runs a unique e-commerce service and has plenty of cash on that debt-free balance sheet.
You have to be willing to accept a hefty serving of risk here, as Stitch Fix needs to reverse its flagging revenue trend and start generating positive profits at some point. However, if you're willing to take that leap of faith, this low-priced stock could be a strong turnaround play.
