Tech stocks had an incredible year in 2020 and are now sliding lower in 2021. The sentiment has clearly shifted. That creates an opportunity for investors to finally get in at reasonable prices. Here are the top two reasonably priced tech stocks you should consider for 2021.
Tech stock 1
Nuvei (TSX: NVEI) stock is down just 8% from its all-time high. That’s despite the sell-off in the broader tech market. The reason, in my opinion, is that it’s a reopening play that’s still under-the-radar for most investors.
Nuvei stock trades at a forward price-to-earnings (P/E) ratio of 56.71. Considering the fact that its growth rate was above 50% in recent quarters, the P/E-to-growth or PEG ratio is roughly 1. In other words, growth is appropriately priced at the moment. Indeed, Nuvei should see a surge in transactions as Canada’s economy opens up in the second-half of 2021.
Keep an eye on this undervalued tech stock.
Tech stock 2
Open Text (TSX: OTEX)(NASDAQ: OTEX) has recouped all the losses accrued the past year. While the stock has pulled lower significantly from its one year, the correction has come on the broader tech industry coming under pressure. A 7% correction might as well have made the stock cheaper and attractive for long-term bargain hunters.
Digital transformation
The company is well positioned for tremendous growth, given that its software and services are at the heart of the ongoing digital transformation. Open Text offers solutions that help businesses manage and connect data within the organization. Its solutions are finding great use in connecting large digital supply chains in manufacturing and the financial services sector.
Over the last five years, Open Text has more than doubled its sales, underscoring strong demand for its solutions. Its free cash flow has also increased by 135%, which explains the 75% increase in dividend payments, supporting the relatively stable 1.6% dividend yield.
Long-term prospects
The rate at which cloud service is growing affirms Open Text’s ability to generate solid recurring revenue, leading to higher earnings and free cash flow. The acquisition of the likes of Carbonite is expected to help the company gain a foothold in new markets. It has also inked strategic partnerships with the likes of Google enabling integration of Google Cloud, which should allow it to target more enterprise customers.
While the stock is trading with a price to earnings multiple of 18.21, it appears favorably valued given that the S&P 500 is trading with a P/E of 28. It also seems to be undervalued, going by the price to sales ratio of 4. A dividend yield of 1.66% all but makes the stock an ideal pick for income-focused investors.
Bottom line
Tech stocks have adjusted lower, which creates an opportunity for long-term investors seeking bargains. Most stocks are still overvalued, but pockets such as payment processors and overlooked enterprise software companies are looking remarkably attractive now.
