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Smashed tech stocks to accumulate for 2023

Will it pay off to buy stocks that will eventually be the beneficiaries of a rotation back into the tech sector?

We’ve been given a sneak preview how the key influencers of a stock market can overcome the lack of interest in tech stocks. Over the past few weeks, we’ve seen a change of attitude towards buying stocks generally, and especially when it looks like peace talks between Russia and Ukraine are promising.

As the Australian Financial Review’s  William McInnes reported on April 1: “Tech stocks also found some buyers during the week, helping the sector recover from a tough few weeks following on from a massive sell-off in the bond market. Novonix soared 16.1 per cent to $6.41, Life360 advanced 10 per cent to $5.74, Megaport climbed 6.3 per cent to $13.82 and NEXTDC firmed 6.8 per cent to $11.81.”

The week before payments companies such as EML Payments (EML) surged 17.5% and since March 8, a company such as Elmo Software (ELO) was up 24% month’s end. It’s fair to say that where there’s smoke, eventually, oversold stocks will fire up and head higher. So it might pay to stock up with stocks that will eventually be the beneficiaries of a rotation back into the tech sector.

When’s that likely? When the following five things happen:

  1. It’s decided that mining, energy and financials have been overbought relative to expected earnings.
  2. Commodity prices stop spiking.
  3. The rate of interest rate rises slows down or the number of rises ahead look less impactful.
  4. The positives from the rebounding economic growth outweigh the negatives associated with rising interest rates.
  5. When Wall Street starts buying tech BIG TIME again.

Tech stocks are growth stocks. Historically the period after a crash of an economy as well as a stock market is positive for value stocks but, eventually, growth stocks reassert themselves. That’s why I think tech stocks will make a comeback. Undoubtedly, the trigger will come out of the US, powered by the stock market based in Times Square, New York, called the Nasdaq exchange.

Out of the US, we’re seeing some positive price action for tech stocks, with Tesla up 41%! Block (which now owns Afterpay) is up 7% in a month and Paypal has snuck up 15% over that time, after being smashed around 70% since late July of last year!

 

PayPal (PYPL)

Source: nabtrade

 

So what local stocks do the analysts surveyed by FNArena like? And what do they expect their share prices will rise by in the not-too-distant future?

Company

Ticker Code

Consensus Rise*

Highest Rise*

Audinate

(AD8)

61.8%

63.04% (Morgan Stanley)

Appen

(APX)

5.9%

32.9% (Citi)

Carsales.com

(CAR)

17.9%

26.7% (Credit Suisse)

Elmo Software

(ELO)

85.7%

85.7% (Morgan Stanley)

EML Payments

(EML)

43.5%

56.3% (UBS)

Megaport

(MP1)

33.8%

51.95% (Macquarie)

Next DC

(NXT)

19%

31.4% (Morgan Stanley)

Pro Medicus

(PME)

7.7%

18.4% (Morgans)

REA Group

(REA)

24.6%

36.7% (REA)

SEEK

(SEK)

18.7%

33% (Credit Suisse)

Tyro Payments

(TYR)

75.5%

178% (Morgan Stanley)

Zip Co

(Z1P)

76.1%

172% (Ord Minnett)

Xero

(XRO)

19.5%

58.4% (Credit Suisse)

Source: FN Arena. Assumes movement to analyst target price

 

Interestingly, two well-performed tech companies i.e. Altium (ALU) (down 12.3%) and Wisetech (WTC)  (down 5.7%) — are not expected to see their share prices rise any time soon, but they have been good performers while other tech stocks have been dumped.

ALU has risen 25.59% over the year, while WTC is up a whopping 64.88%! Being quality performers, it wouldn’t surprise me if they keep on rising. Good stocks with momentum can keep on surprising on the high side.

 

So what’s the quality and less risky play for the tech stock collector? 

Try these:

  1. Carsales (CAR)
  2. NextDC (NXT)
  3. REA
  4. Xero (XRO)
  5. Seek (SEK)

which would give an average return of 19.9% if the analysts are right.

 

Thrill seekers should try: 

  1. Audinate (AD8)
  2. Elmo Software (ELO) 
  3. EML Payments (EML)
  4. Tyro (TYR)
  5. Zip (Z1P)
  6. Megaport (MP1)

 

I think they are all good companies with a lot of promise but are currently out of favour with the market. The average return if these six were lumped together would be 63%. And even if the analysts were only half-right, they would net a nice return.

In most cases the analysts agreed that the prices of these stocks were on the way up, but they might have disagreed about the magnitude of the rise.

There’s not one of these companies I’d be afraid to add to my portfolio of stocks. I suspect tech stocks will rebound in late this year but I can wait until 2023, because buying quality businesses when the market is busy chasing other companies and sectors is the competitive edge for the long-term investor.

I’m sorry if you have heard me say this and the stocks have not picked up yet, but as Muhammad Ali advised us: “It’s the repetition of affirmations that leads to belief. And once that belief becomes a deep conviction, things begin to happen."

I will repeat the good lessons of investing until things begin to happen!

 

 

All prices and analysis at 04 April 2022. This information was produced by Switzer Financial Group Pty Ltd (ABN 24 112 294 649), which is an Australian Financial Services Licensee (Licence No. 286 531This material is intended to provide general advice only. It has been prepared without having regard to or taking into account any particular investor’s objectives, financial situation and/or needs. All investors should therefore consider the appropriateness of the advice, in light of their own objectives, financial situation and/or needs, before acting on the advice. This article does not reflect the views of WealthHub Securities Limited.


About the Author
Peter Switzer , Switzer Group

Peter Switzer launched his own financial business 30 years ago. The Switzer Group has since grown into three successful companies spanning media and publishing that creates written content as well as video and films, with its latest acquisition being the global brand Harper’s Bazaar, financial advice (www.switzeradvisory.com.au), insurance (www.switz.com.au) and business advice (www.growyourbusiness.com.au). Peter is an award-winning broadcaster, twice runner-up for the Best Current Affairs Commentator award for radio, behind broadcaster Alan Jones. He talks to Ben Fordham each morning on 2GB, as well as writing each day on switzer.com.au