• Subscribe
  • Log In
  • Home
  • Daily Diary
  • Asset Class
    • U.S. Equity
    • Fixed Income
    • Global Equity
    • Commodities
    • Currencies
  • Sector
    • Basic Materials
    • Consumer Discretionary
    • Consumer Staples
    • Energy
    • Financial Services
    • Healthcare
    • Industrials
    • Real Estate
    • Technology
    • Telecom Services
    • Transportation
    • Utilities
  • Latest
    • Articles
    • Video
    • Columnist Conversations
    • Best Ideas
    • Stock of the Day
  • Street Notes
  • Authors
    • Bruce Kamich
    • Doug Kass
    • Jim "Rev Shark" DePorre
    • Helene Meisler
    • Jonathan Heller
    • - See All -
  • Options
  • RMPIA
  • Switch Product
    • Action Alerts PLUS
    • Quant Ratings
    • Real Money
    • Real Money Pro
    • Retirement
    • Stocks Under $10
    • TheStreet
    • Top Stocks
    • Trifecta Stocks
  1. Home
  2. / Investing
  3. / Technology

An Ongoing Tech Correction Could Create Some Buying Opportunities

Though many quality tech companies still look expensive, there are some exceptions out there.
By ERIC JHONSA
Sep 10, 2020 | 07:30 AM EDT
Stocks quotes in this article: SHOP, ZM, TTD, ETSY, NTNX, DBX, SWI, WORK, MSFT, IIVI, STM, AVGO, QRVO, CRWD, MDB

With the market's September pullback taking a bit of froth out of the tech sector (a little less so after Wednesday's rally, admittedly), further pullbacks might provide good opportunities to selectively go bargain-hunting.

To be clear, I'm still not a fan of the valuations currently granted to many growth tech names. As much as I might like what companies such as Shopify (SHOP) , Zoom (ZM) , The Trade Desk (TTD)  and Etsy (ETSY)  (just to give a few examples) are doing business-wise, current multiples make their long-term risk/reward profiles far from ideal, particularly at a time when macro risks haven't exactly gone away.

But as I mentioned in a piece a couple of weeks ago, there are still some tech companies out there with meaningful secular and/or company-specific growth drivers whose valuations still look pretty reasonable. At the time, I highlighted chip equipment firms (a group that sold off yesterday following reports that Chinese chip manufacturer SMIC could be blacklisted), Chinese tech stocks and moderate-growth software firms such as Nutanix (NTNX) , Dropbox (DBX) and SolarWinds (SWI) .

And other opportunities have arguably been opening up. Slack (WORK) , which plunged on Wednesday after missing billings estimates and now trades at a sizable discount to many high-growth cloud/SaaS peers, is perhaps one example. Though macro pressures and the growth of Microsoft's (MSFT) Teams collaboration platform are both headwinds right now, markets might be underestimating the stickiness of Slack's platform among enterprises that have adopted it, and the extent to which it's differentiated by Slack's app ecosystem and (more importantly) the Slack Connect service, which lets workers at different companies connect with each other.

II-VI (IIVI) , a supplier of analog chips, optical components and specialty semiconductor materials that has fallen sharply after sharing mixed guidance in mid-August, is another case in point. While it's seeing some near-term margin headwinds, this is still a company that should see strong growth from several end-markets, from high-speed optical transceivers used within telecom networks and cloud data centers, to silicon carbide (SiC) substrates used to make 5G base station amplifiers, to optical components used by LiDAR scanners within smartphones and tablets.

It's worth keeping in mind here that the demand environment still looks pretty healthy for quite a few growth tech companies -- particularly ones with strong exposure to consumer end-markets.

Over the last few trading days, we've seen a slew of iPhone suppliers -- specifically, Broadcom (AVGO) , Qorvo (QRVO) and STMicroelectronics (STM) -- offer strong sales guidance and upbeat commentary about mobile chip demand. And though some of the earnings reports posted by high-growth software firms have been stronger than others, there's generally been more good than bad in the numbers shared, with firms such as Zoom, CrowdStrike  (CRWD) and MongoDB (MDB) comfortably beating estimates and issuing strong guidance.

It's possible that macro issues could eventually make the demand environment seen by such companies worsen. Weakening spending among consumers receiving unemployment benefits is definitely one risk to keep an eye on, and the potential for larger corporate layoffs/spending cuts can't be ignored either.

And if there is a broad and prolonged market selloff due to macro worries, reasonably-valued companies aren't going to be unscathed, even if they're hurt less than more richly-valued peers.

But with that said, if you can stomach such risks, there are some places for growth investors to find good deals within tech during a correction that (like so many corrections before it) has been stinging both high-multiple and low-multiple companies.

Get an email alert each time I write an article for Real Money. Click the "+Follow" next to my byline to this article.

At the time of publication, Action Alerts PLUS, which Jim Cramer co-manages as a charitable trust, was long AVGO and MSFT.

TAGS: Investing | Technology

More from Technology

Atlassian Is Now in the Latter Stages of Its Decline

Bruce Kamich
Jun 24, 2022 12:22 PM EDT

Let's check the charts and indicators.

Wolfspeed Could Start to Run With the Pack

Bruce Kamich
Jun 24, 2022 7:55 AM EDT

Here's how aggressive traders can play this tech stock.

Chinese Tech Company Ximalaya Pulls Planned IPO Yet Again

Alex Frew McMillan
Jun 24, 2022 6:30 AM EDT

Poor market conditions and the uncertain status of Chinese tech listings cause the podcast market leader to put off its Hong Kong IPO.

Will This Year's Energy and Commodity Trades Become Last Year's Tumbling Tech?

Helene Meisler
Jun 24, 2022 6:00 AM EDT

I can't remember the last time anyone asked me about Apple. No one cares.

Remember All the Hype Around Palantir?

Bruce Kamich
Jun 23, 2022 12:52 PM EDT

Here's how the charts look now.

Real Money's message boards are strictly for the open exchange of investment ideas among registered users. Any discussions or subjects off that topic or that do not promote this goal will be removed at the discretion of the site's moderators. Abusive, insensitive or threatening comments will not be tolerated and will be deleted. Thank you for your cooperation. If you have questions, please contact us here.

Email

CANCEL
SUBMIT

Email sent

Thank you, your email to has been sent successfully.

DONE

Oops!

We're sorry. There was a problem trying to send your email to .
Please contact customer support to let us know.

DONE

Please Join or Log In to Email Our Authors.

Email Real Money's Wall Street Pros for further analysis and insight

Already a Subscriber? Login

Columnist Conversation

  • 12:10 AM EDT PAUL PRICE

    More Insider Buying in American Woodmark (AWMD)

    American Woodmark , which I've discussed here fr...
  • 08:55 AM EDT JAMES "REV SHARK" DEPORRE

    This Weekend on Real Money

    The 10 personality traits of successful traders an...
  • 12:08 PM EDT STEPHEN GUILFOYLE

    Stocks Under $10

    As a Portfolio Name Agrees to a Merger, Here's Our...
  • See More

COLUMNIST TWEETS

  • A Twitter List by realmoney
About Privacy Terms of Use

© 1996-2022 TheStreet, Inc., 225 Liberty Street, 27th Floor, New York, NY 10281

Need Help? Contact Customer Service

Except as otherwise indicated, quotes are delayed. Quotes delayed at least 20 minutes for all exchanges. Market Data & Company fundamental data provided by FactSet. Earnings and ratings provided by Zacks. Mutual fund data provided by Valueline. ETF data provided by Lipper. Powered and implemented by FactSet Digital Solutions Group.

TheStreet Ratings updates stock ratings daily. However, if no rating change occurs, the data on this page does not update. The data does update after 90 days if no rating change occurs within that time period.

FactSet calculates the Market Cap for the basic symbol to include common shares only. Year-to-date mutual fund returns are calculated on a monthly basis by Value Line and posted mid-month.

Compare Brokers

Please Join or Log In to manage and receive alerts.

Follow Real Money's Wall Street Pros to receive real-time investing alerts

Already a Subscriber? Login