The Motley Fool

2 Top Tech Stocks to Look for in December

Image source: Getty Images

It’s that time of year when shopping is at its peak. Business is booming for retailers and restaurants in the holiday season. While the pandemic has affected many businesses, it has not reduced the festivities. Retailers and restaurants have come up with ways to do business in the COVID-19 economy.  

E-commerce stocks rally 

At the start of November, I suggested keeping a watch on some e-commerce stocks, including Lightspeed POS and Kinaxis (TSX:KXS).

This is the time when companies like Lightspeed and Shopify (TSX:SHOP)(NYSE:SHOP) enjoy seasonal sales. And this year, Cyber Monday, Black Friday, and holiday season shopping are majorly happening online amid the second wave of the pandemic. 

As expected, stocks of Lightspeed and Shopify surged 20% and 77% in November and are still rising. This rally could continue to January 2021, when the two companies release their quarterly earnings.

They could report around 95% year-over-year increase in revenue in the current quarter. Buying into the two stocks at this point might not be a wise decision. But if you own these stocks, keep a watch on them. 

Shopify stock 

Shopify stock is in a megaphone trend where its movement is range-bound in the $1,200-$1,450 range. It entered this trend as it rallied significantly during the pandemic, making it overpriced for its current growth.

The dilemma of overpriced stocks is their upside potential is limited. After one point, short-term investors lose their patience and cash out profits.

You can make money in such range-bound stocks by buying at the lower end of the range and selling at the higher end of the range. The stock fell to $1,155 on November 9 and 10 on the vaccine news. If you followed my tip and bought the stock at that price point, now is the time to prepare to sell. 

Shopify is currently in the higher range of the megaphone trend. The stock is trading at $1,411 and could still grow above $1,450. The stock is trading at normal volumes and could even make a new high above $1,502. Stay alert and sell the stock once it crosses the $1,450 mark. 

If you invested $3,000 in Shopify, it could become $3,765. That’s not a bad bargain for short-term gains. 

Kinaxis stock 

While Shopify and Lightspeed stocks have been riding on the bull of holiday season sales, Kinaxis stock saw a correction. It fell 10% in November on slightly slower growth in the third quarter. Its revenue rose 17% year-over-year but fell 10% sequentially. 

The right way to look at Kinaxis’ revenue is annually rather than quarterly figures. It signs two to five-year contracts with customers and gets payments in advance.

The pandemic has delayed some contract renewals and the signing of new contracts. But its overall growth prospect is strong. It’s supply chain planning solutions will be in demand as business-to-business trade picks up. 

Kinaxis’s stock has surged 77% so far this year. The stock is trading at its June level and has the potential to grow as the economy recovers.

Concerns around the tech bubble 

Many analysts warned that the pandemic has created a tech bubble as tech stocks have rallied to record-high valuations. The thing with valuation is you can’t see them in isolation. Shopify stock is trading at 68 times its sales per share.

Even when the stock fell to $1,150, it was trading at 55 times its sales per share. The stock justifies this valuation with a 95% revenue growth. If the company continues to grow its revenue at this pace, its valuation will normalize in a few years. 

Similarly, Kinaxis is trading at 16.5 times its sales per share for a 15% revenue growth. This valuation will also normalize as the company wins new contracts from large enterprises. 

The concerns of a tech bubble are therefore overblown. It’s the way software companies function in their growth stage. They enjoy rising cash flows and profits once they make a sizeable base of loyal customers. 

Speaking of top stocks to grab right now... 

The 10 Best Stocks to Buy This Month

Renowned Canadian investor Iain Butler just named 10 stocks for Canadians to buy TODAY. So if you’re tired of reading about other people getting rich in the stock market, this might be a good day for you.

Because Motley Fool Canada is offering a full 65% off the list price of their top stock-picking service, plus a complete membership fee back guarantee on what you pay for the service. Simply click here to discover how you can take advantage of this.

Click Here to Learn More Today!

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 Puja Tayal 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 KINAXIS INC.

Two New Stock Picks Every Month!

Not to alarm you, but you’re about to miss an important event.

Iain Butler and the Stock Advisor Canada team only publish their new “buy alerts” twice a month, and only to an exclusively small group.

This is your chance to get in early on what could prove to be very special investment advice.

Enter your email address below to get started now, and join the other thousands of Canadians who have already signed up for their chance to get the market-beating advice from Stock Advisor Canada.