My 2 Favorite Stocks to Buy Right Now

Key Points

• Alphabet has a lot of growth opportunities still ahead in multiple areas.

• Meanwhile, the stock is still attractively priced.

• The recent sell-off in Toast stock looks like a major overreaction.

• 10 stocks we like better than Alphabet ›

Even with the market near all-time highs, there are still great stocks trading at valuation levels that leave plenty of upside for patient investors. Two that stand out to me right now are Alphabet (NASDAQ: GOOGL) (NASDAQ: GOOG) and Toast (NYSE: TOST). Both have attractive valuations given where these businesses are headed over the next few years.

Alphabet

Alphabet has put a lot of the bear arguments to bed. Artificial intelligence (AI) is not disrupting Google Search; instead, it is a complement that is helping drive growth. Search revenue growth accelerated last quarter as Google's AI Overviews and AI Mode are bringing in more queries, as are features such as Lens and Circle to Search.

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The Department of Justice decision was another major win because Alphabet gets to keep its distribution edge with Chrome and Android, and its Apple deal stays largely intact. Billions of people still start their internet sessions with Google, and most users stick with the defaults they are given.

Cloud computing, meanwhile, continues to be one of Alphabet's most exciting opportunities. Google Cloud revenue surged 32% last quarter and segment profits more than doubled, as the business is showing strong operating leverage as it scales. Demand for AI infrastructure is so hot that Alphabet said capacity constraints may last into next year. As a result, it upped its capital expenditures (capex) for this year by $10 billion to $85 billion to capture this growing opportunity.

What sets Alphabet apart, though, is that it is vertically integrated, which gives it a cost advantage and more upsell opportunities. Gemini has become one of the best foundation large language models (LLMs) out there, while it is also a leader in other areas such as data analytics and Kubernetes, which are software packages that bundle apps with everything they need to run. Its also developed its own highly regarded custom AI chips, and even owns one of the largest private fiber networks in the world. Its pending acquisition of Wiz, meanwhile, will help establish it as a leader in data center security.

But that's not Alphabet's only big shot on goal. Its Waymo robotaxi business has a big head start in the U.S. and is expanding quickly. Meanwhile, its quantum computing team is making progress on error rates with its Willow chip. Put all of that together and Alphabet has a lot of growth opportunities in the years ahead. Best of all, the stock is still attractively priced, trading at a forward price-to-earnings (P/E) ratio of 24 times 2026 analyst earnings estimates.

Image source: Getty Images.

Toast

Toast has been growing quickly, but the stock has come under pressure after analysts at Baird noted that the maker of restaurant management software recently slashed prices for its starter kits. However, these price cuts need some context. These are generally starter packages for smaller restaurants. Toast's annual recurring revenue (ARR) -- which is its software revenue plus payment processing gross profits -- is nearly $13,000 per location, so these cuts on a small subset of its business aren't going to have a huge impact.

However, the price reductions do give it a better chance to get into newer restaurants that are just opening up, and if it can help make them successful, it will benefit down the line. Its payment processing fees, also notably, haven't changed. This gives it the opportunity to grow with new customers over time, both through payment processing and as restaurants need more modules as they grow.

The company just added a record 8,500 new locations in the last quarter, so it's not suddenly slashing prices because business has fallen off a cliff. Meanwhile, it continues to benefit from the trend of households continuing to spend more money on food away from home. Toast is also gaining traction with enterprise chains, grocery stores, and in international markets, which gives it multiple new growth levers outside its core U.S. restaurant base.

With the pullback, the stock now trades at an enterprise value-to-ARR multiple of 9 times my 2025 ARR projections of $2.1 billion based on company estimates, which is inexpensive given that ARR is growing close to 30% a year. This sell-off looks way overdone, and now is a great time to pick up the stock on this pullback.

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Geoffrey Seiler has positions in Alphabet and Toast. The Motley Fool has positions in and recommends Alphabet and Toast. The Motley Fool has a disclosure policy.