Tech Stocks Are Rallying, but Are They Worth Your Money?

Investors may want to consider resilient tech stocks like Shopify Inc. (TSX:SHOP)(NYSE:SHOP) for their upside potential.

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Amid the news that recent additional North American tariffs could be applied — thus weighing on the markets in the latter half of last week, it should perhaps come as no great surprise that a proposed push back against those tariffs has now given a boost to the same stock exchanges.

The tech sector experienced a particularly bad start to the week, with the proposition of extra regulatory measures in that field helping to bring down share prices in an already volatile economic climate. However, the recent moderately good news has seen the bleeding stemmed somewhat, with the following stocks beginning to recoup some of their losses.

Shopify (TSX:SHOP)(NYSE:SHOP)

With a five-day loss of 3.53% at the time of writing, but up 3.4% after a day’s trading, the Canadian tech giant is mirroring the dip and rebound of the U.S. tech sector. Stocks in this space took a hit at the start of the week after the twin spectres of extra regulatory scrutiny and the imposition of new North American tariffs combined to take a chunk out the markets.

As anyone who monitors, invests in, or is even marginally interested in Canadian stocks will know, Shopify is an anomaly. It almost carries the whole of the domestic tech sector single handedly, and comes closest to the big league NASDAQ players most newcomers will have heard of. It’s also tied to the legal cannabis industry, making for a top pot-related stock for investors who don’t actually want to buy pot stocks.

With a 36-month beta of 1.03, Shopify is less volatile than some of its peers, though with a high forward P/E and bloated P/B of 13.8 times book, it certainly looks like a tech stock. With a 64.1% growth in earnings on the way over the next three years, even cautious investors bearish on tech may want to take a position.

Alphabet (NASDAQ:GOOGL)(NASDAQ:GOOG)

Negative one-year returns are a head scratcher to be sure, and begs the question: are Alphabet‘s glory days behind it? An average earnings growth rate of just 12% over the past five years is certainly not as high as one might expect for so ubiquitous an entity. With a five-day loss of 7.47%, the Google parent company is nevertheless up 1.42% at close of play at the time of writing.

Alphabet stock has a few things going for it, some of them obvious, and others not so obvious: Most important, Google is a massive market player with its related products and services filling key niches in our everyday lives. Additionally, the data for Alphabet is favourable: analysts expect earnings growth over the next three years of 15%. The stock is also a healthy one, with a low, reduced level of debt.

The bottom line

While tech stocks are indeed starting to make a recovery at the time of writing, they’re certainly not back to where they were before they fell. Indeed, since the extra regulatory scrutiny, some of the leading tech companies could be subjected to will likely be an ongoing new facet of that sector, it’s possible that the days of heady growth and buckets of upside may be in the past with the exception of a few outperformers like Shopify.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. Fool contributor Victoria Hetherington has no position in any of the stocks mentioned. David Gardner owns shares of Alphabet (A shares) and Alphabet (C shares). Tom Gardner owns shares of Alphabet (A shares), Alphabet (C shares), and Shopify. The Motley Fool owns shares of Alphabet (A shares), Alphabet (C shares), Shopify, and Shopify. Shopify is a recommendation of Stock Advisor Canada.

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