Tech Sector Bounces Back: 3 Stocks To Buy Before They Become Red Hot

Tech Sector Bounces Back: 3 Stocks to Buy Before They Become Red Hot

The tech sector growth stocks are often too overpriced to touch, and since it’s impractical to wait for them to become undervalued, consider buying when they are more reasonably priced.

Adam Othman

Adam is a value investor who is always on the hunt for fantastic undervalued companies that he can share with Motley Fool readers. He follows Warren Buffett and Charlie Munger's investment advice and has completed the Canadian Securities Course. When he's not investing, Adam can usually be found traveling or skiing.

Published October 28, 2021 1:20 pm EDT

After more than an 11% dip, the tech sector is bouncing back. It’s already more than halfway up toward the peak and might get there soon. While neither a sign of a long-term correction nor a sign against it, the current fluctuation in the sector allows you to buy a few, usually red-hot stocks at a more reasonable price.

A Waterloo-based tech stock

Magnet Forensics (TSX: MAGT) is a “fresh” stock with a market capitalization of about $1.6 billion. It only started trading on the TSX in April and has done well so far. The share price has grown about 81% since then, and that’s after the 28% slump from the peak. The stock is currently quite overpriced, which is typical, but it has almost no debt and a decent amount of cash to fund its growth projects.

As the name suggests, Magnet Forensic is all about digital forensics and investigation, a rapidly evolving field. Many crimes nowadays are either primarily digital or have a digital component to them, and companies like Digital Forensics, with the right technologies and solutions, can play a key role in solving them. The company offers solutions to law enforcement agencies as well as enterprises to solve corporate crimes.

A personal finance stock

If you are looking for a tech stock that rose too sharply after the pandemic and fell to its pre-pandemic valuation (or its regular price), Mogo (TSX:MOGO)(NASDAQ:MOGO) is a good contender, even though it’s a long way up from its pre-pandemic valuation. The stock rose about 1,160% from its market crash valuation in about a year, and just as quickly started tumbling down and is already over 58% lower than its peak valuation.

The current “discounting” momentum might carry the stock down even more, probably to its pre-pandemic valuation. And that would be an amazing time to buy a stock that’s capable of multiplying your capital 10 times. The personal finance space is growing increasingly competitive, especially across the border, but there is also a lot of room for growth for a company like Mogo.

A consistent growth stock

Ceridian HCM Holding (TSX:CDAY)(NYSE:CDAY) is a bit different from the other two stocks on this list. It has a time-tested and stellar growth history, and it didn’t spike the way other tech stocks did after the pandemic. Perhaps that’s why the stock didn’t experience too deep a correction after the initial recovery momentum ran out. It dipped 24% and has already recovered from the dip. It’s now trading at an all-time high.

The stock has returned about 223% to its investors in the last three years, and it might have the potential to repeat the feat for the next three years. So if you want to triple your money in fewer than five years, this should be on your radar. Its HCM software Dayforce is used by companies around the globe for their HR, payroll, benefits, and other employee-related needs.

Foolish takeaway

When it comes to TSX’s tech stocks, overpricing is the norm. You should try to determine whether the expensive price tag is worth it when considering buying a tech stock. Your goal should be to find stocks that offer a reasonable surety of growth strong enough to offset the high price.