As the market turned somewhat sideways (slightly down) in April, there were quite a few notable bears. In fact, tech stocks were leading the bull market at the time. And while a correction (defined as a full 10% decline) never materialized, a partial correction (if even that!) struck fear into the hearts of some.
After all, a single-digit percentage decline was a great buying opportunity. Also, while the “tech bubble” crowd may want to go back into hibernation once the next earnings season rolls around, I'd rather see a big drop in value than run for the hills. .
It's never easy to buy on the edge, but I don't think we're ready for a tech bubble in the first place. Even for tech companies that are more focused on artificial intelligence (AI), we don't see too much frothing, especially when compared to medium-term growth runways. Yes, AI is a big deal. And it's worth the premium.
The dot-com style premium is probably unwarranted, but we haven't seen that level of euphoria yet. And until tech multiples really inflate to ridiculous levels, I would look for this sector as a mainstay for growth-focused tax-free savings account (TFSA) funds.
There are two tech stocks on my watchlist that I would buy if May's sense of security starts to wane.
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OpenText (TSX:OTEX) stock fell off a cliff after the company gave a fairly lenient outlook for fiscal year 2025. Make no mistake, it's not poor earnings that's causing the turmoil in tech stocks this earnings season. It was instruction. However, now that expectations have significantly lowered (various analysts have soft-guided the stock lower), I see OTEX stock as a great contrarian strategy for investors who aren't afraid of significant volatility.
The stock has now lost 45% of its value since its 2021 peak. While it would be easy to throw in the towel, we encourage investors to think long-term. The company is incredibly innovative and committed to more exciting technology trends (cybersecurity, cloud, AI, etc.).
Even as AI scales up, I don't think the demand for top-class enterprise information management software will stop. Rather, I think the latest soft guidance is just a short-term pressure point that everyone will look back on in five years.
Shopify
Shopify (TSX:SHOP) is another great tech stock that looks attractive after its recent selloff. While the stock has already begun to rebound after briefly falling below $100 as investors brace for the company's latest quarterly results, I continue to think this e-commerce innovator is missing from young Canadian investors' portfolios. I see it as an existence that should not exist.
Many analysts at some major banks have praised the stock after the spring selloff. Time will tell whether Shopify's stock price will fall below $100 again (it's currently hovering around $105), but a tough earnings season is better for value investors looking for explosive growth over the long term. I think it could open up an entry point.
Personally, I think investors are optimistic ahead of earnings. Given the fairly realistic estimates for this quarter, I'm not opposed to buying ahead of the quarter. Be prepared to lower your average in case you get unimpressive guidance.
