Is Tech Finally Making a Comeback? 2 Stocks to Watch

Even though the returns are not as powerful as when you buy at the peak of the slump, buying stocks when their recovery pattern has solidified can still be profitable.

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The tech sector is finally showing some signs of recovery, but this news should be taken with a grain of salt, as we might be going through a recession in the coming year, and the current bullish phase might be just that: a phase. But if you believe that the tech sector is making a comeback, two stocks should be on your radar.

A beaten-up tech stock

Few tech stocks are as beaten up as Real Matters (TSX:REAL). The stock is currently trading at a massive 87% discount from its last peak and has mostly gone downhill since then. This is a different pattern compared to other tech stocks, which may have experienced signs of life along the way and pushed upward for a while before going down again under the weight of a falling sector.

We can attribute such characteristic falling of this stock is because of its overlap to another sector that’s in trouble right now — real estate. But that wouldn’t be a fair assumption considering the fall’s timeline. Still, it hasn’t helped matters either and may contribute to slower stock recovery.

The bad news is that the stock hasn’t shown the signs of recovery as most tech stocks have, which may indicate that the investors are still not confident or are worried about intrinsic or fundamental weaknesses in the business. But the good news is that if a sector-wide recovery does push the stock up, you may see exceptional growth, thanks to the massive slump.

It might happen once real estate stocks start recovering or once the tech bear market is truly over.

A promising tech company

While it’s not one of the large-cap stocks per se, Topicus (TSXV:TOI) is undoubtedly a big shot in the venture capital market, where there is an abundance of small-cap and micro-cap stocks and few mid-caps. But that disproportionate difference from its venture capital peers is not what makes it a promising investment; it’s the stock’s underlying strengths and its association with Constellation.

As one of the six companies in the portfolio of Constellation (even though it was spun out of the fold), Topicus may be considered similarly promising. But the problem is that we haven’t seen the stock’s potential yet, as it joined the Canadian market at a challenging time: post-COVID. It rose beautifully when the tech was rising, and the fall was just as epic; it dropped 48% from the peak.

We can assume that once the tech sector is out of the harsher waters and goes truly bullish in a healthy market, Topicus, which is a mature tech company operating mainly in stable European markets, will emerge as a good holding.

Foolish takeaway

The tech sector slump has been harsher than most sectors, but the tide might be turning. Once the market gets through the challenging 2023 quarters and the economy starts recovering organically, we may see companies like Topicus and Real Matters experience robust growth proportional to or even better than their recent falls.

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 The Motley Fool recommends Constellation Software and Real Matters. The Motley Fool has a disclosure policy.

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