3 TSX Tech Stocks That Could Break Out of This Market Slump

Identifying the point at which a stock is ready to revert course and restart growing can be enormously profitable. You can get capture maximum discount and recovery growth.

| More on:
falling red arrow and lifting

Image source: Getty Images

You’re reading a free article with opinions that may differ from The Motley Fool’s premium investing services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn more

The tech sector in Canada was the first to recover and experience magnificent growth after the 2020 pandemic. But it was also the first to go through a brutal correction. The TSX Capped IT Index has now fallen 8.3% below the pre-pandemic peak.

This means that all the growth sector/index as a whole accumulated during the pandemic is not just undone, but the downward movement has carried the sector further down, essentially putting up a discount tag on it (and on the individual stocks). However, there are some tech stocks that might be poised for a breakout soon, and you should consider buying before they fully reverse course.

A real estate tech company

Real Matters (TSX:REAL) offers its investors an overlap of the tech sector and the U.S. real estate market or, more accurately, a specific slice of it: the mortgage industry, insurance, and appraisers.

The proprietary technology, the idea, and the network the company has managed to build are quite impressive, but this impressiveness cannot be seen in the stock, at least not since Aug. 2021, when the stock entered its correction phase ahead of the sector.

After going through a phenomenal growth spurt between the 2019 and 2021 peaks, during which the 2020 crash was a minor blip, the stock was over 800% higher. But it came down just as hard. The current slump has already pushed it down 83%.

However, the stock is showing signs of recovery, and its comparative undervaluation is also endorsing the possibility that the stock might be on the edge of a full-fledged recovery.

A software company

If you are looking for a relatively diverse tech company on the TSX that is not tied down to one market or doesn’t rely on a single product/platform, Enghouse Systems (TSX:ENGH) is an option worth considering. The company caters to a variety of vertical markets and has two business segments.

The interactive management business division focus on visual communication and contact centres. In contrast, the asset management group caters to a broader market through two underlying brands.

Enghouse is one of the few dividend payers in the tech sector. Usually, its yield tended to remain under desirable levels, but thanks to the slump that has caused the stock to fall 54% below its pre-pandemic levels and made it one of the most undervalued companies in the sector with a price-to-earnings multiple of 15.5, it has also pushed the yield up to an attractive number of 2.9%.

The stock is too heavily discounted and poised for a breakout.

An information management

Business today is all about information management and flow. With data becoming the hottest new commodity and AI/ML growing from their infancy, companies like Open Text (TSX:OTEX)(NASDAQ:OTEX), which are equipped to help a wide variety of businesses go through their digital transformation journey with the power of data propelling them, can be smart investments.

The stock has already started showing signs of recovery, and even though its most recent recovery bout is all but over, the fact remains that it’s on the right trajectory. The yield, which is usually quite low, is currently 2.3%, quite a decent number considering the company’s historical yield. It’s also modestly undervalued, which may also accelerate its recovery.

Foolish takeaway

All three tech stocks are not just discounted; they are also quite undervalued compared to their peers in the sector. However, not all of them might be able to break out by themselves, and a sector-wide recovery may become the trigger for full-fledged growth.

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 Adam Othman has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Enghouse Systems Ltd. The Motley Fool recommends OPEN TEXT CORP and Real Matters Inc.

More on Tech Stocks

Hand arranging wood block stacking as step stair with arrow up.
Tech Stocks

Could Lightspeed (TSX:LSPD) Stock Hit $50 in 2022?

The significant selloff in Lightspeed stock seems unwarranted, especially as the company has multiple growth catalysts and is delivering robust…

Read more »

analyze data
Tech Stocks

Fantastically Cheap TSX Tech Stocks

Investors should benefit from buying cheap tech stocks that are growing their profits in this market correction.

Read more »

Wireless technology
Tech Stocks

2 Quality Growth Stocks Breathe Life Into the Tech Sector

The battered technology sector has been advancing lately thanks to two quality growth stocks with pricing powers.

Read more »

clock time
Tech Stocks

Now’s the Time to Load Up the TFSA With These 2 Top TSX Stocks

Here are two top TSX stocks that long-term growth investors may not want to give up on, especially at these…

Read more »

shopping online, e-commerce
Tech Stocks

Shopify (TSX:SHOP) Stock Recovers 30% From its 3-Year Lows: Should You Buy?

Shopify stock: Should you buy the dip or wait for more weakness?

Read more »

Businessman holding tablet and showing a growing virtual hologram of statistics, graph and chart with arrow up on dark background. Stock market. Business growth, planning and strategy concept
Tech Stocks

What Market Correction? 2 High-Growth Tech Stocks That Are on the Rise

I don’t think it will be long before these two Canadian tech stocks are back to delivering market-crushing returns.

Read more »

grow dividends
Tech Stocks

Why Kinaxis (TSX:KXS) Stock Jumped 14% Last Week

Kinaxis Inc. (TSX:KXS) stock popped over the past week after adding yet another big company to its impressive stable.

Read more »

potted green plant grows up in arrow shape
Tech Stocks

TFSA Investors: Double Your Investments With These 3 Top Growth Stocks

Despite the volatility, I am bullish on these three stocks, given their solid growth potential.

Read more »