In a sudden and sharp reversal that many were warning about for weeks, red-hot tech stocks fell off a cliff in September, with the tech-heavy Nasdaq index falling into correction territory over the course of roughly one week. Now where are all the good tech stocks to buy?
While many out there are comparing the current tech stock climate to the dot-com boom of the late 1990s, all that bubble talk is just hot air.
The reality is that the current climate for tech stocks is nothing like that in the late 1990s.
Valuations in tech stocks back in 2000 were 80% higher than where they sit today (50-times forward earnings, versus 28-times forward earnings). Profit margins across the sector in 2000 were below 10%. Today, they are above 20%. The effective Federal Funds rate was 6.5% in 2000 and climbing. Today, it’s basically 0% and falling.
Plus, above all else, the companies investors were hyping up to change the world back then — like Pets.com — had zero chance of actually changing the world. The companies investors are hyping up today — like Shopify (NYSE:SHOP) and Square (NYSE:SQ) — are already changing the world and have billions of dollars in revenue to prove it.
So, no, this is not the dot-com bubble 2.0.
And the recent weakness in tech stocks is nothing more than a longer-term buying opportunity.
With that in mind, here’s three tech stocks to buy on the dip in September:
Fallen Tech Stocks to Buy: Alteryx (AYX)
First up on this list of tech stocks to buy in September is data science company Alteryx.
Alteryx stock has been absolutely crushed amid the Covid-19 pandemic because, when economic activity slowed in the second quarter of 2020, many enterprises tightened their budgets and cut back on discretionary spending. For some companies, data science is mission-critical. For others, it is discretionary spend. So, amid the pandemic, some companies cut back on data science spend, and that showed up in Alteryx’s weak Q2 numbers.
But, zooming out, Alteryx is still a leader in providing easy-to-use tools which enable companies to glean valuable insights from data. Considering we are entering a world wherein data-driven decision making is increasingly becoming ubiquitous at the enterprise level, data science platforms like Alteryx which enable such data-driven decision making will only become more and more important.
Couple this reality with the fact that economic activity and enterprise spending are already rebounding big, and it increasingly appears that Alteryx’s second quarter dud will prove to be a one-time-thing. Q3 and Q4 numbers will be much better than expected. The growth outlook for 2021 will improve.
And, as all that happens, AYX stock will rebound.
Next up on this list of tech stocks to buy in September is e-commerce automotive platform Vroom.
Vroom — alongside Carvana (NYSE:CVNA) — is attempting to digitize the automotive shopping process. Only 0.9% of used car sales happen in the online channel today, versus 30% of apparel sales and 40% of consumer electronics sales. Vroom and Carvana are hoping to leverage technology like augmented reality, all-in-one platform convenience and a seamless delivery process to connect this gap.
During Covid-19, Vroom has done just that, mostly because car dealerships shut down.
But as car dealerships are opening back up, investors are concerned that Vroom’s hyper-growth trajectory will fizzle out, hence the recent weakness in VRM stock.
Spoiler alert: it won’t.
The car market is increasingly being driven by Millennials — young consumers who grew up in the era of Amazon (NASDAQ:AMZN) and inherently prefer to the online shopping experience. These Millennial car buyers will continue to use platforms like Vroom to buy cars, and as they do, we will increasingly enter a world wherein most cars are bought and sold online.
In that world, VRM stock only drives higher. So buy today’s dip.
Last, but not least, on this list of tech stocks to buy in September is PayPal.
Much like Vroom, PayPal has thrived during the Covid-19 pandemic, because we are all shopping online, all the time, and using digital payment methods to facilitate that shopping.
But, also much like VRM stock, PYPL stock has come under pressure recently on worries that as stores open back up, consumers will decrease their online shopping frequency, and PayPal’s growth rates will moderate.
Sure. This will happen. But is it of any importance?
Taking a step back, we are in the midst of a huge transition from offline shopping to online shopping, and from physical payments to digital payments. This transition existed long before Covid-19 ever arrived. It will persist long after the pandemic disappears, too.
To that extent, while PayPal’s growth rates will moderate somewhat in the second-half of 2020, they will remain robust for the next few years — a stretch in which PYPL stock will only go higher.
On the date of publication, Luke Lango did not have (either directly or indirectly) any positions in the securities mentioned in this article.
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