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Is the tech stock market at its lowest point? The tech stock sell-off began on December 30, 2021, as hedge funds offloaded massive amounts of their tech holdings over fears of interest rate hikes. The Nasdaq Composite Index The first half saw a 32 percent drop in stock prices. Because of the huge size of their holdings, all bubbles burst.
The Nasdaq Composite Index fell 32% between April 5th and June 15th, but rallied 10% within a month. Is tech stock at its bottom? Is this a temporary rally? For many tech stocks that are consumer-facing, the second half of the year is strong. However, the recession has reduced this seasonality. Business software solutions are one sector that has seen growth in recession as companies reduce their IT budgets and invest in digital transformation.
These tech stocks have shown buying activity even after the Bank of Canada increased its interest rate 100 basis points.
Two growth stocks you can buy to get ahead of the stock market rally
Two stocks were stuck in the April-June selloff, despite their fundamentals remaining intact:
This growth-through-acquisition story has fallen prey to the sell-off. Constellation was able to acquire some quality companies at a bargain price because of the industry’s decline. Although not all acquisitions are successful, a lower acquisition price could offset losses and increase profits.
Constellation acquires mission critical software companies that generate stable cash flows. Constellation could see more cash flow from acquisitions made in this downturn. Recessions could increase investment by corporations in software that can improve business efficiency. While historical performance does not guarantee future returns, the management’s experience in closing deals profitably builds investor confidence.
Constellation stock plunged 23% during the selloff but has risen 7.7% in one month. Constellation stock is currently in a long-term upward trend, as evident from past downturns. Every downturn ended with a higher bottom than the previous one. In the 2018 United States-China Trade War, the stock reached its lowest point at $824 per share. The pandemic saw the stock drop to $1,200. This trend shows that the company took advantage of the dip to grow its size via acquisitions. This could be the right time to purchase the stock, as it is closer to its bottom.
Stock of Open Text
Open Text, unlike Constellation has been a range bound stock for the past four years. Open Text provides enterprise information management software and has stable revenues. Cross-selling is the best way to grow its business and it does not pursue aggressive acquisitions. In December 2021, the company acquired Zix.
Open Text’s information management solutions are sticky and generate regular stable cash flows. Its customers pay annual payments so cash flows can vary between quarters. OpenText’s full-year earnings are the best way to analyze it. The company anticipates that macro factors such as the Russia-Ukraine War, China Lockdowns and interest rate rises will have a marginal impact on its foreign currency revenue and EBITDA. However, its fiscal 2024 outlook The organic revenue growth rate of 24% is maintained.
The tech stock selloff saw Open Text stock fall 35%. It reached $46.27 on May 12, close to its pandemic low of $44.83, or the 2018 low of $42.8. The stock trades between $45 to $62. Although it did briefly exceed the range, most trades were within that range. OpenText is on a rally. It has surged 12% to more than $51. The stock could rise another 18-20% in the recovery phase. If the opportunity presents itself, this could be the best time to purchase the stock at $51.5 or sell it at $61.
Takeaway for Investors
It is difficult to time the market, as evidenced by the tech stock rally over the past 30 days. The market will not know when it has reached its bottom. You will always know if there has been a downturn or rally. It is smart to buy the dip by investing less every month in the downturn and earlier in the rally before stock prices soar double-digitally.