Tech Meltdown: 2 Tech Stocks to Buy the Dip

Tech stocks are in a meltdown. But two tech stocks outperformed the Nasdaq and the tech ETF. It’s time to buy the dip.

| More on:
Financial technology concept.

Image source: Getty Images

The Nasdaq Composite Index is down 28%, and the iShares S&P/TSX Capped Information Tech Idx ETF (TSX:XIT) is down 40% year to date. The tech stock meltdown is here, as investors sell their high-risk growth stocks amid fears of a recession. Hedge funds were the first to sell, and retail investors followed. Are you thinking of selling your tech stocks just because the price is falling? Stop right there. 

“If a business does well, the stock eventually follows.” 

Warren Buffett

Two tech stocks to buy the dip

Here are two enterprise software stocks with diversified customer bases and resilient business models for risk-averse investors. 

Descartes stock 

Descartes stock fell 23% year to date, outperforming Nasdaq and XIT ETF. It outperformed the tech index due to its resilient business model of supply chain management. Descartes customers vary from airlines to industrial to e-commerce. 

The Russia-Ukraine war has disrupted the global supply chain, and many companies are looking for alternate suppliers. This has dented Descartes’s operations in the short term. But it has created a long-term opportunity. A shift in the global supply chain calls for re-optimization. Airlines are re-routing their flights, and suppliers are re-documenting. A supply shortage of various raw materials has created a significant order backlog. All the above factors have delayed growth, and the slowing economy has pulled down the stock. This is a good time to buy this growth stock at the dip. 

Descartes has an asset-light model. It doesn’t provide logistics services but helps in transport management. Hence, it is not directly impacted by high oil prices. Its $213.4 million cash reserve can help it survive an economic downturn. The sanctions on Russia could drive demand for Descartes solutions like denied party screening, foreign trade zone management, and export compliance.

Descartes stock fell during the United States-China trade war and the pandemic but bounced back at a higher rate. If you invested in Descartes stock in the trade war or pandemic dip, your money would have surged 50% in five months. The looming recession could take longer to recover, so a 50% return in five months might not be possible. Depending on the severity of the recession, it could take 12-36 months to recover. Buy Descartes stock now and hold it for three years to enjoy 50-70% returns. 

Constellation stock

My second pick is another resilient tech giant, Constellation Software, the private equity firm of small software companies. Like Descartes, Constellation has a vast consumer base across different verticals. But it goes a step further and offers diversified software offerings. As an umbrella company, it has several subsidiaries. Last year, it spun off its subsidiary Topicus into a publicly traded company. 

Customer diversification gives Constellation a cushion against sectoral weakness. The mission-critical nature of its solutions cushions it against economic weakness. In the first quarter, Constellation’s revenue surged 22%, and cash flow surged 1%. The company continued with its acquisitions. The bearish stock market allows Constellation to acquire companies at attractive valuations. 

The stock has dipped 18% year to date to July 2021 level. Now is the time to buy the stock, as it falls under tech stock meltdown while its fundamentals remain intact. 

Foolish way to make the most of the tech meltdown 

At Motley Fool Canada, we encourage investors to make informed decisions rather than hasty decisions. The macro-economic weakness is putting pressure on the stock market, which is causing the selloff in fundamentally strong stocks. This is the time to buy the dip. Now, you can’t say with accuracy when the stock would rally. But you can make a calculated estimate of the returns from their fundamentals. I expect a 50-70% jump in Descartes and a 15-18% in Constellation. Once these stocks reach this level, I will revisit the economic scenario to see if there is more upside or is it time to book profit. 

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.

The Motley Fool has positions in and recommends Topicus.Com Inc. Fool contributor Puja Tayal has no position in any of the stocks mentioned. The Motley Fool recommends Constellation Software.

More on Tech Stocks

Family relationship with bond and care
Dividend Stocks

TFSA Investors: 3 Cheap Canadian Stocks for Retirees

These three Canadian stocks are super cheap for retirees looking for a great buy that will last the test of…

Read more »

consider the options
Tech Stocks

Better Buy (2024 Edition): Shopify or Nvidia Stock?

Shopify (TSX:SHOP) isn't the only red-hot tech stock in town that could add to recent gains.

Read more »

Illustration of bull and bear
Tech Stocks

A Bull Market Is Coming: 3 Growth Stocks That Could Thrive

Given their high growth prospects and cheaper valuation, these three growth stocks would be an excellent buy as the market…

Read more »

online shopping
Tech Stocks

2 Stocks That Saw Major Black Friday Boosts

These stocks saw a pretty amazing Black Friday, a sign that both are probably going to be a great buy…

Read more »

Growing plant shoots on coins
Tech Stocks

2 Top Growth Stocks in Canada for December 2023

Here are two of the best Canadian growth stocks you can buy in December 2023.

Read more »

Dots over the earth connecting the world
Tech Stocks

Is Constellation Software Stock Worth a Buy in December?

Constellation stock (TSX:CSU) is up 46% in the last year alone, but after an earnings miss should investors still consider…

Read more »

Man data analyze
Tech Stocks

Beyond SPY Stock: Top U.S. Picks for Canadian Investors

Venturing beyond SPY stock opens up a world of investment possibilities for Canadian investors. Top U.S. picks include Apple.

Read more »

edit Colleagues chat over ketchup chips
Tech Stocks

Is Now the Right Time to Buy Tech Stocks Trading Cheaply?

Tech stocks are still cheap across the board, but these two are the best of the best in my view,…

Read more »