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The Stock Market Is Near an All-Time High: 2 Stocks That Are Still Screaming Bargains

The Stock Market Is Near an All-Time High: 2 Stocks That Are Still Screaming Bargains


THE S&P500 has climbed about 24% in 2023, hovering right around its all-time high. THE Nasdaq Composite is up 44%, although the tech-heavy index still has a way to go before it starts hitting new all-time highs.

This rally has made stocks generally more expensive, but there are still some good deals out there for investors looking for a bargain. Here’s Why Investors Should Consider International Business Machines (NYSE:IBM) And Digital Ocean (NYSE:DOCN) as 2023 draws to a close.

International Business Machines

A startup building something from scratch is free to run all of its workloads on public clouds and use the generative artificial intelligence (AI) service of its choice. But for a large company that has been around for decades or more, things are more complicated.

A large incumbent company may run workloads on a combination of its own hardware and public cloud platforms. It may depend on existing software or have on-premises databases that support critical processes. And with tons of first-party and customer data, sending it to an untrusted AI service is a recipe for disaster.

IBM serves as a trusted advisor to businesses looking to modernize their infrastructure and adopt AI technology. Through its software platforms and extensive consulting business, IBM provides clients with solutions that reduce costs, reduce complexity and increase productivity. In the field of AI, IBM Watsonx Platform enables customers to deploy cutting-edge AI models while minimizing compliance, regulatory and data privacy concerns.

IBM’s revenue is expected to grow 3% to 5% this year excluding currency impacts, and the company expects to generate about $10.5 billion in revenue. free movement of capital. With a market cap near $150 billion, IBM trades at a price-to-free cash flow ratio of 14.

While IBM stock is up about 16% in 2023, it remains well below its all-time high reached more than a decade ago. If the company can generate consistent revenue and free cash flow growth in the coming years, the market could finally be convinced that IBM’s turnaround is real. A combination of free cash flow growth and a higher valuation multiple should then generate strong returns for investors.

Digital Ocean

It is almost certain that the largest companies in the world will use Amazon Web Services, Microsoft Azure, or another major platform for their cloud computing needs. With complex requirements and armies of IT professionals, navigating a large and complex cloud platform is not a problem.

For individual developers and small businesses, it’s a different story. Simplicity is valuable for a significant portion of the cloud computing market. A small business may only need a virtual server and a database. With AWS and other major cloud platforms having such steep learning curves, the upfront costs of using these platforms are high.

DigitalOcean keeps its platform simple, in more ways than one. The company’s service catalog is short, and it’s increasingly expanding into managed cloud services that eliminate much of the administrative burden for developers. Pricing is also simple and predictable, with little chance of receiving a surprise cloud bill if something goes wrong.

DigitalOcean faces challenges as customers cut spending, but recent acquisitions pave the way for long-term growth. The acquisition of Cloudways brought high-value customers and managed cloud servers to the DigitalOcean platform, and the acquisition of Paperspace provides the company with a user-friendly AI platform.

DigitalOcean’s growth has slowed, but the company is increasingly generating cash. Free cash flow is expected to be 21-22% of revenue in 2023, or about $150 million. With DigitalOcean valued at approximately $3.2 billion, the price-to-free cash flow ratio sits at 21.

Given that DigitalOcean expects its total addressable market to more than double to $195 billion by 2026, this valuation seems not only reasonable, but downright cheap. DigitalOcean’s growth rate in the short term could be volatile, but the company should be able to deliver double-digit annual revenue growth for many years.

Should you invest $1,000 in international office machines right now?

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John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Timothy Green holds positions in DigitalOcean and International Business Machines. The Motley Fool holds positions and recommends Amazon, DigitalOcean and Microsoft. The Motley Fool recommends International Business Machines. The Motley Fool has a disclosure policy.

The Stock Market Is Near an All-Time High: 2 Stocks That Continue to Do Good Business was originally published by The Motley Fool



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