Summary
Tech and high growth names continue to be pounded, with headlines and macro factors delivering blow after blow.
In my opinion, catching a true bottom is a near impossible task, instead I choose to layer in at levels that I find attractive long term.
I list 4 names that appear to be valued fairly today and could provide fantastic entry points for long term investors.
Kaan Uluer/iStock via Getty Images Bargain hunting in the stock market is not a pretty task, on the contrary, buying when sentiment is low and shares are getting slaughtered is one of the hardest things to do as an investor. Nobody is perfect at it and most, including yours truly have quite a few horror stories of our attempts to catch a falling knife.
Since November 2021, shares in most small to midcap tech and high growth names have been sent basically straight down, in some cases, to levels below the start of the COVID pandemic in 2020. Below are a few examples of the carnage from recent 52 week highs. Name Percent down from 52 week high This drop certainly did not occur in a vacuum, inflation is roaring, COVID restrictions are lifting and rates are set to rise for the foreseeable future. Within this backdrop, growth names were bound to take a huge hit. Investopedia The reaction to this confluence of events however seems a bit overdone in my opinion. Certainly, higher rates are a negative for growth names and inflation is a legitimate threat, however rates moving from 0.25% to even 5% longer term does not seem to warrant 50-60% blanket selloffs in everything high growth.
Higher rates do not necessarily preclude growth names from overperforming as history can attest too. Investment metrics It would seem likely that in addition to rates moving higher, the end of COVID restrictions and the enthusiasm for certain names that the pandemic created, may be having an equal or greater affect on market sentiment.
What I have been doing in my own research is to sift through the names that have been hit the hardest to find companies that appear to be operating at a very high level, independent of COVID and in addition, appear to have secular tailwinds that are not dependent upon the pandemic.
Below, I will list a few names that I find particularly attractive currently along with a brief “elevator pitch” for each. Dynatrace ( DT )
This company, in the observability space, has been absolutely crushed lately, all while delivering results that have been widely praised across the board. Shares, as recently as November of 2021 traded at $77, can now be had for $41.64, a whopping 46% discount. Data by YCharts Dynatrace is currently trading at nearly the levels reached before the pandemic, so what happened? The company did hire a new CEO after the planned retirement of long time CEO John Van Siclen, however the new CEO is a highly respected and talented man named Rick McConnell, who was the president of Akamai Technologies ( AKAM ) focusing on the security technology group.
Rick, in the Q3 conference call indicated no significant changes to the company’s strategy and indicated that the company plans to invest 2-3% of revenue in R&D and sales for the release of a highly anticipated security offering and an update to the go to market process casting a wider net to increase growth.
Both of these seemingly positive announcements were received very negatively by the market and shares dropped 22% on that day alone.
In my opinion, Dynatrace is a fantastic company who’s shares have been unjustly punished. The company is an extremely consistent performer who is GAAP and free cash flow profitable and capable of growing revenues north of 30% in a large and emerging field in which they are among, if not, the leader.
Currently the company is priced as if something is wrong with the growth story, when I believe it is actually on the verge of accelerating, therefor I have increased my already large position in the name and will continue to do so. Palantir Technologies ( PLTR )
An even more extreme example of negative sentiment is Palantir. The company was a Wall Street darling after its direct listing, shooting up 300% in short order. Lately, shares have been crushed all the way back down to nearly the original listing price. Data by YCharts The shift in sentiment in this name has been epic. One minute, everything they do is gold and the next, they are […]
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