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

consider the options
Tech Stocks

3 Beaten-Down Growth Stocks Trading at Massive Discounts to Wall Street Estimates

Growth stocks such as Roku and Cresco are trading at massive discounts compared to Wall Street price target estimates.

Read more »

Profit dial turned up to maximum
Tech Stocks

Constellation Software (TSX:CSU): Spending Spree Continues!

Constellation Software (TSX:CSU) spent over $200 million on investments in the first quarter.

Read more »

what to do when stock market falls
Tech Stocks

TFSA Investors: This 1 Tech Stock Could Help You Become a Millionaire

TFSA investors may consider buying this Canadian tech stock now, which could multiply their savings and help them become millionaires…

Read more »

Hand holding smart phone with online shop concept on screen
Tech Stocks

E-Commerce and Recession: Has Shopify Stock Hit the Bottom? 

Shopify (TSX:SHOP)(NYSE:SHOP) stock has dipped almost 80% over recession fears. Is this the bottom, or there is more downside? 

Read more »

data analytics, chart and graph icons with female hands typing on laptop in background
Tech Stocks

Docebo’s Earnings Were Surprisingly Decent

Docebo Inc (TSX:DCBO)(NASDAQ:DCBO) was a pandemic-era winner. Its recent earnings release was just so-so.

Read more »

Male IT Specialist Holds Laptop and Discusses Work with Female Server Technician. They're Standing in Data Center, Rack Server Cabinet with Cloud Server Icon and Visualization
Tech Stocks

These Tech Stocks Are Finally Trading at a Discount

Tech stocks like Constellation Software (TSX:CSU) are finally trading at a discount.

Read more »

edit Sale sign, value, discount
Tech Stocks

Canadian Tech Stocks at 60-90% Discount: 5 Top Deals for Today

These tech stocks have corrected significantly and have multiple growth catalysts.

Read more »