Ready to Buy the Dip? This Tech Stock is a Smart Buy

Financial technology concept.

Many beginner investors who started in 2021 may feel discouraged by the violent bear market. Stocks only seemed to go up last year. These days, they only seem to go down. With interest drying up, I’d argue that contrarian long-term investors should look to snatch up the quality merchandise that many others were more than willing to pay higher prices for just a few months earlier.

Now, catching bottoms is a fool’s (that’s a lower-case “f”) game. But opportunities do exist if you’re in it for the long haul and have enough dry powder to drip-feed into markets throughout this bear market. This down market could last a few more months. And there are a few reasons to keep waiting around for better prices. At this rate, the stock you’re looking to pull the trigger on is likely to be much cheaper in a month or so. Still, it’s not guaranteed to stay at these fairly attractive levels a week or month from now.

Seeking deeper bargains in the tech sector

The tech sector, in particular, has been hammered. Though avoiding unprofitable growth companies seems wise, interest rates continue to rise. I’d argue that going against conventional wisdom entails buying the battered merchandise that many have already soured on.

Yes, it’s tough to value companies that aren’t raking in cash flow these days. But dismissing them could be a costly mistake. You’re effectively passing up many secular growth companies with share prices more than 80% off their highs.

It’s better to be safe than sorry by opting for companies you can value in a rising-rate world. But if you’re a long-term investor with a 5–10 year investment horizon, hone your valuation skills. I’d argue the fallen tech stocks are falling knives that may be worth getting knicked to catch.

Yes, it will be painful. But if you can average down (buy shares gradually over time), I think young investors will be invested long enough to ride a glorious multi-year recovery. Now, recovery hopes tend to dissipate when downside exceeds 80%. That said, investors should focus on the road ahead, rather than the path in the rear-view. Many hard-hit tech companies sport risk/reward profiles that aren’t all too bad amid their moment of distaste.

For certain, a stock that’s down by 70–80% can always fall by another 70–80%, Yet, I think fear has become so overdone that such a scenario is less likely for the tech firms that have pathways towards profitability.

Shopify stock: Sailing through a hurricane

Shopify (TSX:SHOP)(NYSE:SHOP) is one fallen tech star that I think will shine brightly again once a recession is fully baked into the market. The e-commerce platform may face a tougher environment, but it’s still the same forward-thinking company it was in 2021. If anything, the site loved by e-shops has improved its technological advantage, with intriguing acquisitions and new product offerings.

In a prior piece, I praised Shopify for getting into the physical retail business with its point-of-sale (PoS) Go hardware offering. I believe Shopify’s ecosystem is expanding in a way that could make its post-recession recovery relatively swift.

Indeed, Shopify’s offline retail push has mostly been ignored by frustrated tech investors. However, I do think the firm will prove the skeptics wrong as it seeks to find its footing from one of the worst plunges in its history.

Where does SHOP stock go from here?

Shopify stock crumbled nearly 10% on Monday as risk-on trades imploded. Though there could be more downside ($200 per share isn’t out of the cards) ahead for Shopify and other tech darlings like it. Nonetheless, I would watch the name closely on the radar. It’s a wonderful company that’s navigating through choppy waters. My bet is that it will make it through the hurricane in one piece.

The post Ready to Buy the Dip? This Tech Stock is a Smart Buy appeared first on The Motley Fool Canada.

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Fool contributor Joey Frenette has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Shopify. The Motley Fool has a disclosure policy.