When growth companies had access to capital, they were the hypergrowth stocks to buy and hold. Investors could count on their funding growth to fuel their expansion without effort. Unfortunately, that changed abruptly when the U.S. Federal Reserve embarked on an interest rate increase cycle. Technology companies that lost money as their revenue grew fared the worst in late 2021 and throughout 2022. The central bank’s quantitative tightening and higher interest rates tightened access to money. Nowadays, investors are too fearful. They’re punishing companies excessively. Instead, investors should plan to buy and hold quality companies that have good value, including:
CSG Systems (CSGS)
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CSG Systems (NASDAQ:CSGS) provides business support systems software and services. It’s assisting telecom operators with their digital transformation initiatives, while supporting stable, mature sectors like pharmacy retailers. In the last quarter, CSG expanded its customer base in South Africa. It also won more business with one of the U.S.’s top three pharmacy retailers, a new industry vertical for CSG.
In the third quarter, CSG reported GAAP earnings per share of 40 cents. Revenue grew by 3.8% year over year to $273.31 million. The company also increased its staffing levels to support its big, complicated deployments. Next year, as it delivers on its programs, it will win more deals. For example, investors should expect customers to buy new products like CGS Xponent. CSG Encompass is an API-driven solution for global telecom firms. When telecom firms plan their budget, they will allocate funds to buy CSG’s integration products.
NexTier Oilfield (NEX)
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NexTier Oilfield (NYSE:NEX) is an integrated oilfield service provider. In the third quarter, it posted a 128% year over year revenue growth to $896 million. NexTier will increase shareholder returns by initiating a $250 million stock buyback. This runs through Dec. 31, 2023. Trading near a 52-week high, investors could wait for NexTier stock to pull back. The firm needs to navigate through a challenging supply chain environment. It will grow its EBITDA by increasing the profitability of its fleet.
In Jan., NexTier has a new electric fleet starting. It will transition its customer base. Investors should expect the company to balance its hydraulic fracturing at its simul-frac with its traditional zipper frac.NexTier will allocate two-thirds of its capital expenditure to sustaining and transitioning its fleet. In the next 10 years, it has a goal of powering its fleet with 100% natural gas and electric sources.
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Oracle (NYSE:ORCL) expects revenue to top $65 billion by 2026. This is above the $42.4 billion it reported in fiscal 2022. Oracle will also reportedly post healthy operating margins of around 45%. Markets will eventually appreciate the database software giant’s prospects. Oracle has a mission to deliver end-to-end industry automation. Customers will recognize that it can solve business challenges. If that improves efficiency, Oracle will win more long-term contracts. In 2023, the company will build more infrastructure solutions for customers. Since it offers enterprise scale applications, customers may increase their reliance on Oracle’s solution. That will help strengthen the company’s profit margins. Expect Oracle to raise its guidance in the next quarter.
Progress Software (PRGS)
Progress Software (NASDAQ:PRGS) offers software that facilitates the creation and deployment of business applications. In the third quarter, it posted revenue of $151.2 million. It expects revenue in the range of $156 million to $164 million in the fourth quarter. Progress has customers who are due for contract renewal. It could offer multi-year contract discounts to them. This increases the firm’s revenue predictability. Investors will buy more PRGS stock to reward the company for its low volatility.
Investors should look for evidence that Progress is growing its relationship with existing customers. The company might increase its cross-selling product activity. This increases margins and raises its profits. Once Progress reports a stronger net retention rate, investors may confidently start buying the stock in 2023.
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Salesforce (NYSE:CRM) is in a sustained downtrend in 2022. Investors are dumping the stock on valuation worries. Salesforce will report weaker full-year results than markets expected. The company is not immune to macro headwinds. Still, some of the weaker guidance, as discussed on the conference call, is a result of foreign exchange rates. The weak Euro is unprecedented.
Costs could grow. Salesforce needs to invest in the business to support its growth. It must also fuel customer support and acquisition with less staff. Look for operating margins to hold steady levels in the next year. Salesforce’s customers will re-calibrate their spending plans. They will likely reaffirm their commitment to digital transformation. This increases the quality of the customer experience.
It also improves operating efficiency. Just as Salesforce is realizing efficiencies, customers will, too, with the help of cloud software. The company will continue to invest in its Sales Cloud Unlimited product. Expect user demand for Salesforce Easy to rise in the quarters ahead.
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ServiceNow (NYSE:NOW) built 2,000 net new solutions on its ServiceNow Platform this year. This will increase its free cash flow margin growth. As technology investors accumulate and seek growth, they will buy this enterprise software stock. Corporate customers need IT service solutions. They need to manage assets and operations. ServiceNow has such highly secure solutions. As customers cut employee levels, it needs ServiceNow to simplify the removal of system access. This is less expensive than managing in-house.
Companies are slashing IT spending in areas outside of digital transformation and automation. They will need to increase their digital presence. This helps customers defend their market share. ServiceNow has a large addressable market. When more companies commit to digital transformation initiatives, their revenue growth will accelerate. In addition, the company can help clients set up workflow automation. Clients may install chatbots that assist their customers.
Trade Desk (TTD)
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Trade Desk (NASDAQ:TTD) specializes in real-time programmatic marketing automation technologies. In the third quarter, it posted revenue growing by 31.1% Y/Y to $394.77 million. For the fourth quarter, Trade Desk expects revenue of at least $490 million. Advertisers are cutting back on spending. They must do more with less. The company needs to win more business from advertisers as the market size shrinks.
CEO Jeff Green said that he is seeing companies like Proctor & Gamble (NYSE:PG) actively shift their spending from linear and non-targeting TV. Instead, P&G will concentrate on programmatic and digital ad spending. Precise marketing is a necessary shift. Corporations need their advertising to reach their intended audience effectively.
In 2023, investors should monitor the new connected television inventory levels. This will fuel the adoption of Unified ID solution 2.0. Expect The Trade Desk to add more UID partners. Next year, the company will have quality data in its ecosystem. This increases value for advertisers.
On the date of publication, Chris Lau did not have (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.
Chris Lau is a contributing author for InvestorPlace.com and numerous other financial sites. Chris has over 20 years of investing experience in the stock market and runs the Do-It-Yourself Value Investing Marketplace on Seeking Alpha. He shares his stock picks so readers get actionable insight to achieve strong investment returns.
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