3 TSX Tech Stocks to Handle With Caution

Dye & Durham (TSX:DND) and two other latecomers to the momentum stock party look ripe for selling, as the growth thesis weakens.

edit Safety First illustration

Image source: Getty Images

Growth stocks are coming in for a bashing, as the market stumbled into September. It’s been a glum end to the summer, bringing a veritable bloodbath of red ink. Some pundits have been quick to call the selloff, which began as a limited tech stock correction, a market crash. But while we’re not quite at March levels of fear, the sentiment in the markets has undeniably shifted, as we head into the new season.

Summer’s tech stock trends turn toxic

Facedrive aims to provide a ride-hailing service based on an environmentally friendly fleet. It’s a cute idea and has seen a lot of investor interest. But its momentum — in both directions — is becoming increasingly dangerous. Up by around 650% this year, the name has pulled back sharply of late. Facedrive has ditched about 25% in the last four weeks. And that’s bad news given the week the markets just had.

The gig economy is a precarious investment area at best. It is also one that is rife with questions of an ethical nature. Then came this year’s findings of the Union of Concerned Scientists. The report suggests that the environmental impact of ride-hailing companies is almost 70% worse than traditional transport modes. It estimates that the environmental toll of outfits like Lyft and Uber is significantly greater than from normal travel.

Dye & Durham is a pure play on the digitalization of legal services. It’s climbed 53% in just four weeks. However, this name has ditched 11% this week, making it a dog of a stock. This is one of the rare occasions when it might be worth realizing a loss and taking the hit. This name is unlikely to improve in the current climate. Down 13.9% off its month-long high, Dye & Durham is a liability to a stock portfolio.

In any other recession, speculative growth investing would be deemed inadvisable. And while value opportunities can be found in any downturn, the markets in 2020 have been turning on a dime. Lightspeed POS is down 11.8% this week. For all of the hullabaloo about this stock, Lightspeed has seen an insipid 16% growth year on year. Low-risk investors should look elsewhere.

Expect a rough fourth quarter for tech stocks

Personally, I don’t think any of these names brings anything really radical to the table. Most of this has been done before. Facedrive comes across as a reworked Uber with a “go green” gimmick thrown in. Dye & Durham is an even more vanilla version of Descartes Systems Group. Lightspeed is an uninteresting take on a space better represented by Shopify. In short, there are stronger plays out there in more established names.

In terms of momentum, it’s probably safe to say that the current economic environment does not support the type of growth investing that erupted this year. Investors would be better off looking now towards value stocks, as the long road to a post-pandemic recovery begins. Now is not the time to be risking capital for the sake of a few reworkings of growth trends that are quickly going out of fashion.

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.

Fool contributor Victoria Hetherington has no position in any of the stocks mentioned. Tom Gardner owns shares of Shopify. The Motley Fool owns shares of and recommends Shopify and Shopify. The Motley Fool owns shares of Lightspeed POS Inc. The Motley Fool recommends Uber Technologies.

More on Tech Stocks

cryptocurrency, crypto, blockchain
Tech Stocks

Everyone Is Talking About Chip Stocks: Are They a Good Long-Term Option?

Chip stocks have been all the rage, but what are long-term investors really in for by buying them on the…

Read more »

Wireless technology
Tech Stocks

3 Tech Stocks You Can Buy and Hold for the Next Decade

Are you looking for Canadian tech stocks that could be multi-baggers in the decade ahead. Here are three small-cap stocks…

Read more »

Businessman holding AI cloud
Tech Stocks

3 Top Artificial Intelligence Stocks to Buy in March

AI stocks are the future, but what about the companies already using it for their own advantage? Here are three…

Read more »

retirees and finances
Tech Stocks

Should You Wait Till 70 To Claim CPP Benefits?

You can earn the maximum CPP payout if you wait till 70 to claim the benefit. But is the wait…

Read more »

financial freedom sign
Tech Stocks

1 Tech Stock Has Created Millionaires and Will Continue to Make More

Are you interested in a tech stock that has created millionaires? Find out which stock that is!

Read more »

Business man on stock market financial trade indicator background.
Tech Stocks

This Growth Stock Is Down 26%: Buy, Sell, or Hold?

While many growth stocks took to the sky after the December 2023 earnings, this one growth stock fell 26%. Should…

Read more »

question marks written reminders tickets
Tech Stocks

BlackBerry Stock Is at a 20-Year Low: Is it a Buy?

BlackBerry has been through several ups and downs. But this time, the stock is at its 20-year low. Is this…

Read more »

Two seniors float in a pool.
Tech Stocks

Could Nuvei Stock Help You Become a Millionaire?

Nuvei stock is favourably priced today for growth focused investors to buy. Could the stock enhance your chances to build…

Read more »