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Tech Stocks: Time to Buy the Dip

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Last week, the first highly effective coronavirus vaccine was announced. This morning, we got news of a second highly effective vaccine. This has unsurprisingly created a rally in markets, except for one major sector: tech stocks.

At this point in the pandemic, getting word that we have vaccines that are effective is great news. Hopefully, soon we can get confirmation that the vaccines are safe, and they can quickly be approved. That would almost certainly help a forward-looking stock market to continue to rally.

Tech stocks, however, have been some of the biggest losers since the vaccine was announced. This is in contrast to the massive rally these stocks saw as the pandemic first started, and lockdowns were imposed.

It would make sense that tech stocks were being sold-off if the announcement stated that a vaccine is ready today. However, that’s not the case. And while the news of the vaccine is still promising, it also confirms that we are still months away from the end of the pandemic, at the earliest.

Therefore, in my opinion, the selloff in tech stocks, especially the top ones, is a little surprising.

Not only do I think it’s a little early for the distressed businesses to recover. Consider, we are just beginning to enter the second wave, and already it’s much worse than the first. But also, giving up on tech stocks could be a huge mistake for investors.

While tech stocks undoubtedly got a major tailwind from the pandemic, several of the top companies should be able to retain a tonne of sales going forward.

A top tech stock to buy on the dip

For example, work-from-home tech stocks could continue to see positive revenue growth. Many companies have committed to having their employees work from home for some time. Some have even said they expect it could be indefinite.

Similarly, a stock like Shopify (TSX:SHOP)(NYSE:SHOP) likely won’t see a massive decline in sales just because the pandemic ends. It’s not likely that all the merchants who went online during the shutdowns just give up their e-commerce strategy, especially when all their competitors are likely online now, too.

E-commerce is a trend that has gotten more and more popular over the last few years. That was almost certainly going to continue into the future, with or without the coronavirus pandemic. The fact that shutdowns happened to speed up the process shouldn’t mean that when the pandemic ends, e-commerce popularity is just going to fall back to where it was before.

That’s why, although I believe a lot of tech stocks being sold off right now offer incredible value for growth stocks, Shopify may be the best option yet.

Up until this point in the pandemic, Shopify has smashed its earnings numbers. And we are about to enter a holiday season where coronavirus cases are skyrocketing faster than anything we have seen so far.

Personally, I still see major growth potential for Shopify. Of course, much of that is over the next six months to a year. From a long-term perspective, though, with the additional momentum it could gain during the rest of the pandemic, the stock could become unstoppable.

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Foolish takeaway

The news of a vaccine is creating the potential for investors to buy distressed companies that have been significantly impacted by the pandemic. However, an even more opportunistic investment could be buying the top tech stocks on the dip.

Not only have these companies, like Shopify, proven they can grow substantially over the long term, but there is still a lot more opportunity to increase market share in the short term as well.

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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 Daniel Da Costa 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.

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