Growth stocks were out of fashion back in 2022, as rates rose and appetite for speculative behaviour suddenly crumbled. Indeed, the hot gainers of 2020 and 2021 were among the biggest duds of 2022.
Will the tables turn for tech in 2023?
It’s hard to say, but things have been encouraging for the tech cohort so far this year. Big tech is back in control, and small, even unprofitable, innovation stocks may be overdue for a period of sustained relief.
When going on the hunt for deals after a sizeable crash in an industry, it’s important to be equipped to avoid getting slammed with further losses. Just because a stock has fallen by 70%, 80%, or even 95%, doesn’t mean it can’t lose another 70% or more!
The dangers of bottom-fishing should not go ignored.
Luckily, investors can snag sizeable deals if they opt for quality growth and overlook the magnitude of pain a stock may have created in recent years. Think of companies with products that are likely to continue to grow their presence through and after a period of economic turmoil.
Right now, a lot of the macro seems priced into the many fallen growth plays. In this piece, we’ll look at two I think are worth a second look.
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Shopify
Shopify (TSX: SHOP) was Canada’s most exciting and euphoric growth story back in 2021. Though the stock has crumbled, I still think Shopify, the business, is as attractive as ever. A recession could hurt consumers further. But looking beyond such macro pressures, I think Shopify is equipped to continue taking market share in the booming e-commerce field.
The tech world has been hit with layoffs, but Shopify (like many of its peers) is still investing a lot in innovative projects. Shopify can lower the speed of its innovation, but it can’t afford to pull the brakes. Luckily, Shopify has a brilliant leader in Tobias Lütke who can help steer Shopify through another year or two of rough waters.
Will there be competition for the $82.8 billion tech titan?
Definitely. But with innovation in its veins, I think it’s a mistake to write the firm off.
Nuvei
Nuvei (TSX: NVEI) is a Canadian payments play that’s riding high on the back of some good Q4 results. For the full year, sales are slated to be in the $1.2–1.3 billion range. That’s slightly higher than what the Street was expecting. Even if a recession takes some wind out of Nuvei’s sails, I do not think it will miss its new upbeat sales target.
With a strong balance sheet and history of acquiring intriguing small companies in the payments scene, I view Nuvei as a diamond in the rough right here.
At 7.2 times price-to-sales (P/S), shares are pretty reasonably priced. Do mind the volatility, though. The beta is a sky-high 3, implying much more volatility than the TSX.
Bottom line
It’s been a tough time for tech, but longer-term, these stocks are still equipped to continue their growth runs from here. Call 2023 an “off year,” if you will, but Shopify and Nuvei are two worthy Canadian tech companies to watch as tech looks to find its footing.
