We just came off the worst first half to a year in half a century. Undoubtedly, investors are feeling quite rattled these days, with the S&P 500 struggling to come back from a bear market, while the tech sector continues to conduct layoffs and rescinded offers.
The real question on the minds of investors is whether the tech wreck (specifically focused on small- and micro-cap tech) will spread to other parts of this market. Though we’ve witnessed a broadening out of the selloff, which is always a good thing for the longer-term health of the next bull run, it seems like all industries are not destined to roll over.
As rates on the 10-year U.S. note begin to settle in the 3% range, we could witness Mr. Market begin to punish economically sensitive discretionary stocks, as we brace for a rocky road into a recession. Now, a recession is not guaranteed. However, at this juncture, it’s hard to make an argument that we’re not headed for one, especially given the subtle weakness in the consumer.
The case for staying invested in the second half
In any case, investors should stay the course in the second half. While 2022 could prove one of the worst years in decades, I’d argue that given how fast markets have moved this year that considerable gains may also be in the cards. The average bear market spans around nine months. And if we are in an average or mild recession, there’s a good chance that the next bull will be born in the second half. For long-term investors, there’s no greater crime than selling at a loss and missing out on the gains to be had from a significant relief rally.
Without further ado, let’s have a closer look at one stock to play a potential second-half bounce. Currently, I view growth as starting to get more attractive than value. Why? Value has become relatively pricey amid the past six months of selling. Meanwhile, growth has fallen endlessly into the abyss. As rates settle and reverse, the soured growth trade could get a jolt, if it hasn’t already.
At this juncture, I’m a fan of SaaS (Software-as-a-Service) firms like Docebo (TSX: DCBO)(NASDAQ: DCBO) could benefit from continued IT spending from the ongoing digital transformation trend.
Docebo: AI and the digital transformation
Docebo is a LMS (Learning Management System) software company that got a boost during the pandemic. As remote work became the work, Docebo’s offerings got a bid up. Though the economic reopening has weighed heavily on the pandemic winners, Docebo is still on the right side of what could be a long-lived secular trend.
The digital transformation isn’t going anywhere, and with such a large total addressable market, it seems like the recent slide in the stock is more of a roadblock than the beginning of the end. Even as IT spending slows, the firm will continue leveraging next-generation AI technologies to enhance its offering.
Down around 67% from its all-time high, Docebo stock is a tough buy for any volatility-shy investor. Still, I think there are a lot of reasons to give the firm the benefit of the doubt while it attempts to bottom out in the second half.
