3 top tech stocks to buy after the market sell-off

As the market has punished tech stocks over the past few months, many growth investors are seeing much of their hard-earned gains over the past few years all but disappear. But longtime shareholders know that now is not the time to panic, it is the time to buy good stocks.

We asked three experienced investors to pick their best tech stocks to buy right now. They came with Okta (NASDAQ:OKTA), Alphabet (NASDAQ:GOOGL) (NASDAQ:GOOG)and Latch (NASDAQ:LTCH).

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Okta simplifies and secures the modern enterprise

Brian Withers (Okay): Businesses are adopting cloud software at a rapid pace. Okta, an identity management platform, has just released its eighth annual report business at work report providing investors with insight into this trend. Based on data from its 14,000 customers, companies use an average of 89 different apps, a 24% increase since 2016. But for large companies with more than 2,000 employees, the number is a staggering 187. Accessing all these apps inside a large corporate structure can be daunting, but that’s where Okta shines.

Okta is an identity management solution that allows users to have a single sign-on to all their applications while allowing the IT team to control access permissions centrally. This is a victory for the users and for the network administrators who make Okta popular.

Over the past year, the number of customers has increased by 49% to 14,000, but large customers are growing even faster. Customers spending more than $100,000 in annual contract value (ACV) increased 59% year over year. This trend contributed to revenue growth of 61% year over year (including the acquisition of Auth0); at the same time, organic growth was solid at 40%. What’s even more impressive is that its remaining performance obligations (the sum of all contract values ​​not yet recognized as revenue) rose 49% to $2.35 billion.

Metric

Q3 FY2021

Q2 FY2022

Q3 FY2023

Change (QOQ)

Change (YOY)

Income

$217 million

$316 million

$351 million

11%

61%

Remaining performance obligations

$1,582 million

$2,236 million

$2,350 million

5%

49%

Customers > $100,000 annual contract value

1,780

2,610

2,825

8%

59%

Data source: Okta. QOQ = quarter over quarter. YOY = year after year.

The results are remarkable, but investors may wonder if this identity management specialist still has an opportunity to grow. With recent product expansions into adjacent products, the company now calculates its total addressable market at $80 billion. This brings its current revenue rate ($1.4 billion) to less than 2% market share. Plenty of room to run around yet.

What’s even better for tech investors interested in Okta is that the recent selloff sent the stock down more than 35%. Its price/sales (P/S) valuation may seem high at 23, but it’s almost a two-year low. Savvy investors would do well to pick up shares of this identity management platform specialist before the market realizes it’s on sale.

A person is sitting in a kitchen holding a cup and looking at a laptop.

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The alphabet shows why it’s king of the hill

Danny Vena (Alphabet): The prevailing logic is that with the market recovering from a selloff, investors should sift through the trash in search of battered stocks with a clear path forward. There is certainly nothing wrong with this strategy and it is the one I employ myself. There is, however, another way to proceed.

Rather than buying stocks that could recover, why not consider buying or adding to a company that has largely weathered the recession, whose stock price has reached all-time highs, and which has just released stunning financial results? Hear me out as I explain why Alphabet is such a compelling opportunity.

Let’s start with the obvious. Google is the industry leading search provider that simply dominates the competition. Although estimates vary, the company, whose name has become synonymous with search, controls around 92% of the search market worldwide.

This provides a springboard for the company’s digital advertising business. Google is also the industry leader, with around 29% of the market, even as a rival Metaplatforms‘Facebook and Amazon have somewhat closed the gap in recent years.

This dominance helped fuel Alphabet’s strong results, even as other tech companies began to struggle. During the fourth quarter, the company posted revenue of $75.3 billion, a 32% year-over-year increase. Alphabet’s earnings grew even faster, fueled by rising operating margins. This translated into earnings per share of $30.69, which jumped 38%.

This performance shows how Alphabet has become one of the most valuable companies in the world, second only to Apple and Microsoftwith a market cap of $1.94 trillion.

While some investors may balk based on company size alone, that shouldn’t suggest Alphabet doesn’t have additional growth opportunities. The global ad market is expected to grow 9% to $765 billion in 2022, even after record spending in 2021. Additionally, digital advertising is expected to account for more than 60% of global ad spend for the first time this year, according to to Zenith Media Services.

This gives Alphabet two ways to increase ad revenue. It increases as total ad spend grows and it also attracts business as traditional advertising moves to digital channels. As an industry leader, Google is well positioned to capture much of this change.

There are also other exciting opportunities, including Google Cloud and the Waymo self-driving car segment, which could propel future growth.

Alphabet stock has generated 5,800% gains since inception, but even recent investors have outpaced the market with gains of 165%, 262%, and 918% over the previous three-, five-, and ten-year periods ( at the time of writing this article). Following these stunning gains, Alphabet just announced a 20-for-1 stock split to bring its stock price back to earth.

Just to be clear, I’m not saying Alphabet will be a high growth title going forward. But for sure and steady gains, the tech giant will be tough to beat.

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Latch Positioned to Unlock Massive Growth

will heal (Latch): The latch is a software as a service (SaaS) that came to market through a Special Purpose Acquisition Company (SPAC) last summer. As a company with a market cap of $900 million that sells an unknown product, it may not attract as much attention as other growth stocks.

However, it stands out from other SaaS companies by specializing in building management for apartment complexes and commercial buildings. Using its Latch operating system, the company can manage physical access permissions, cameras and systems such as HVAC units.

Latch makes money in two ways. It sells hardware such as locks and thermostats that plug into its operating system. Latch also generates recurring revenue with subscription access to Latch OS.

Building managers like it because it offers centralized management of building functions and security. This includes granting partial access to the building to people such as apartment tenants or couriers without having to manage physical keys. Considering its advantages, one can understand why more than 3 out of 10 new apartment complexes have signed up for Latch.

His attributes also likely explain why Latch generated $11 million in third-quarter revenue, a 120% increase over year-ago levels. Additionally, total reservations, the cumulative value of written (but non-binding) agreements to purchase hardware and software services over the next 24 months, likely indicate future growth. In the third quarter, total bookings were $96 million, up 181% from 12 months ago.

Analysts expect Latch to release its fourth quarter and full year results later this month. For the fourth quarter, the company is forecasting midterm year-over-year increases of 76% for revenue and 113% for total bookings.

But despite the outlook for continued growth, investors have calmed down on Latch, sending the stock down 45% since the company went public on June 7. Building construction delays due to supply chain constraints and labor shortages weighed on the stock.

Moreover, its 26 price/sales ratio may seem high in the face of a technological sell-off. Still, as bookings turn into revenue, a declining P/S ratio and rapid revenue increases could make it a preferred growth stock in 2022 and beyond.

This article represents the opinion of the author, who may disagree with the “official” recommendation position of a high-end advice service Motley Fool. We are heterogeneous! Challenging 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 wealthier.

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