Forget Snowflake: This TSX Stock Could Have 600% Returns

It’s an exciting time for tech stock IPOs. But is Snowflake (NYSE:SNOW) stock a buy, or are there better plays for upside?

| More on:

It’s hard to look at the rash of tech IPOs to hit North American markets and not think that they’re coming at the wrong time. Just look at Snowflake (NYSE:SNOW). Its public listing this week has seen intense interest, with the stock doubling on its first day of trading. But its Wednesday debut was not sustainable, and Friday saw the stock down 10.9% for the week.

The cloud software IPO was already priced higher than the normal range. That makes its new valuation unpalatable. However, one thing is going for tech stock right now: the pandemic is not over yet. While this is undoubtedly bad news, it nonetheless strengthens the digitalization growth thesis — or at least props it up for a while longer.

Tech stock IPOs are coming thick and fast

However, growth investors should start to look beyond this trend and envisage a post-pandemic world. While momentum investing is very much about the present moment, the growth trend could be going out of fashion. Instead, a value investing model could be on the ascendant, as societies begin to deal with the prospect of a messy international recession.

One model that could emerge as more likely than a V- or even W-shaped recession is a complex K-shaped recession. This model predicts an uneven recovery that sees some sectors recovering while others languish. At risk of running out of letters of the alphabet, investors should keep these models in mind while investing. While some sectors could continue to deteriorate, certain trends in tech looks like they could outrun the pandemic.

While cloud based data management is certainly a compelling component of the software-as-a-service (SaaS) trend, Snowflake’s upside could be limited, though. It’s also far too rich for the general investor’s palette. As a speculative play, Snowflake is simply too expensive at its current valuation. Having pulled back 10% this week already, a further correction could be forthcoming.

A better stock for long-term upside

Growth investors may instead consider Xebec Adsorption (TSXV:XBC). This name is looking at annual earnings growth of 218% and could reward investors with 600% total returns in the next three years. What looks on the face of it like a fairly niche stock could actually pay off in the next few years. A machinery play in the gas space, Xebec Adsorption isn’t cheap, but it does undercut some other growth stocks.

This name is also tailor-made for energy investors looking for ways to diversify while lowering exposure to producers in the hydrocarbon space. As I wrote a couple of weeks ago, “Instead of buying energy stocks themselves, Xebec investors get a more diversified play in the space with international diversification backing up that growth thesis.” Investors balking at tech stock valuations might want to get on board.

The growth potential for this name is off the charts. Investors who had been eyeing overpriced tech names in an increasingly crowded space may want to reconsider the potential for energy stocks. And not just energy producers, but producer-adjacent names such as Xebec Adsorption.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning 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 richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Victoria Hetherington has no position in any of the stocks mentioned. The Motley Fool recommends Snowflake Inc.

More on Tech Stocks

A data center engineer works on a laptop at a server farm.
Tech Stocks

3 No-Brainer Data Centre Stocks to Buy With $500 Right Now

Data centres are going to be a huge growth opportunity in the next decade. And these are the top buys.

Read more »

The virtual button with the letters AI in a circle hovering above a keyboard, about to be clicked by a cursor.
Tech Stocks

Is OpenText Stock a Buy, Sell, or Hold for 2025?

OpenText stock has fallen in the last few years, but that could mean this top tech stock remains an undervalued…

Read more »

AI microchip
Tech Stocks

Celestica Stock: Buy, Sell, or Hold?

Celestica's stock price has rallied 950% in the last five years. Will the AI boom send it even higher in…

Read more »

data analyze research
Tech Stocks

2 Ridiculously Cheap Growth Stocks to Buy Hand Over Fist in 2024

Well Health Technologies is a cheap growth stock to buy for its record-breaking results, massive revenue growth, and profitability.

Read more »

A worker uses a double monitor computer screen in an office.
Tech Stocks

4 Reasons to Buy Kinaxis Stock Like There’s No Tomorrow

Kinaxis stock has a strong past. But there is even more to look forward to from this top tech stock.

Read more »

The letters AI glowing on a circuit board processor.
Tech Stocks

The Future of AI: Best Canadian Stocks to Buy Now

Here are two of the best AI-focused stocks in Canada that you can consider adding to your portfolio before it’s…

Read more »

TFSA (Tax-Free Savings Account) on wooden blocks and Canadian one hundred dollar bills.
Tech Stocks

2 TFSA Stocks to Buy Right Now With $7,000

Are you looking for growth stocks that can help you maximize the tax-free withdrawals of the TFSA? This article is…

Read more »

cloud computing
Tech Stocks

3 No-Brainer Tech Stocks to Buy Right Now for Less Than $1,000

Not all tech stocks are the risky investments that many think they are. Which is why we're focusing on the…

Read more »