Is this the beginning of the end? After a tremendous run higher over the last year and a half, the Nasdaq exchange is pulling back from recent highs. Inflation and interest rate jitters are gripping the market again.
The Federal Reserve published its Beige Book report, which reviews economic conditions in the 12 different bank districts. It showed that consumers were cutting back on spending and the economy was showing anemic growth. And eight out of 12 districts showed minimal, if any, job growth.
This is why all eyes will be on the Fed’s Personal Consumption Expenditures Price Index for April, which is due today. While it will be viewed to see if action on inflation shows improvement, economists aren’t hopeful. They are looking for a 2.7% increase, as seen in March.
These data points indicate little hope that the Fed will cut interest rates soon. Atlanta Fed president Raphael Bostic recently said, “We still have a ways to go” before rates are cut. In contrast, Minneapolis Fed president Neel Kashkari said he wants “many more months” of positive inflation news before agreeing to cut interest rates.
We will be stuck with high interest rates for a longer period of time. It could cause the Nasdaq to nosedive. The best we can hope for is to find a cornucopia of value stocks we’ll be able to harvest. Because the market has been riding so high, a market crash will finally make our favorite stocks affordable.
Here are three value stocks to consider when that happens.
Synopsys (SNPS)
Investors might know Synopsys (NASDAQ:SNPS) is in the semiconductor industry and regularly hits new all-time highs, but they might not realize exactly what it does. Essentially, it verifies that semiconductors from chipmakers such as Advanced Micro Devices (NASDAQ:AMD) and Intel (NASDAQ:INTC), its two largest customers, work as they are designed. It provides electronic design automation (EDA) software engineers use to create and test integrated circuits. The artificial intelligence (AI) boom has sent demand for Synopsys’ EDA software skyward.
Fiscal second-quarter results showed revenue rose 15% from last year to $1.46 billion, sending adjusted earnings to $3 per share, 26% higher than the year-ago period. That allowed Synopsys to raise its full-year revenue guidance to $6.12 billion at the midpoint from its previous outlook of $6.09 billion. It now expects annual adjusted earnings between $12.90 and $12.98 per share from its earlier guidance of $12.86 and $12.94 per share.
Synopsys is also in the middle of a transformational acquisition of Ansys (NASDAQ:ANSS), which it purchased for about $35 billion. Synopsys stock isn’t cheap at 62 times earnings, 14 times sales and 80 times free cash flow (FCF). A market crash could make this high-growth stock a value stock again.
T-Mobile (TMUS)
Telecom giant T-Mobile (NASDAQ:TMUS) is another hot stock that is routinely setting new highs. Trading at $170 per share, that is its latest peak. While it goes for a fraction of its projected long-term earnings growth rate, other metrics like price-to-earnings, price-to-sales and price-to-free cash flow suggest it still trades at a premium.
T-Mobile has more people covered by its 5G network than anyone else and, late last year, passed rival Verizon (NYSE:VZ) as the largest U.S. carrier. It’s possible that could change as it implements a new “rate plan optimization” program to hike customer rates. It is looking for the change to increase revenue from postpaid customers by 3% this year, though it could also limit customer growth.
Coupled with a Nasdaq market crash that would cause its stock to tumble to more reasonable levels, investors could have a good value stock on their hands. The carrier and its shareholders will be better off as T-Mobile improves the business’s long-term health.
Netflix (NFLX)
Movie streamer Netflix (NASDAQ:NFLX) is the following value stock to buy when the Nasdaq nosedives. It is becoming a common refrain here, but NFLX stock is closing in on the all-time high it hit during the pandemic. While it suffered a setback afterward as so many movie studios and content sites launched their own streaming channels, Netflix is turning into the last man standing. It is also only one of a very few that is profitable.
Netflix makes it look easy. Last quarter, it brought on 9.3 million new subscribers, far surpassing the 5.2 million analysts expected. Disney (NYSE:DIS) added 6.3 million new customers to Disney+, but only because it partnered with Charter Communications (NASDAQ:CHTR) to allow some Spectrum TV customers free access to the streaming channel. Even so, Disney has 117.6 million customers globally compared to Netflix’s around 270 million.
A downturn might be welcome for Netflix investors. It trades at 45 times earnings, 8 times sales and 40 times FCF. Bringing it down from the stratosphere would make Netflix stock a nice value stock to buy.
On the date of publication, Rich Duprey did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.