3 Stocks I’m Buying During a Tech Stock Correction

Tech stocks like Constellation Software (TSX:CSU) should be on your radar.

| More on:

Tech stocks have had a horrible year. In fact, Canada’s biggest tech stock has lost 64% of its value year to date. This correction has surfaced better opportunities for investors. Robust tech companies are now trading for fair value. 

Here are the top three undervalued tech stocks I’m buying (or watching) during this market correction. 

Tech stock #1

I’ve held WELL Health Technologies (TSX:WELL) since 2020. Since then, the stock has performed better than my expectations and most other small software stocks. I believe it has more room to run. 

In 2022, WELL Health’s management expects annual recurring revenue to exceed $550 million. Meanwhile, the company is worth just $915 million. That’s a forward price-to-sales ratio of 1.66. WELL Health could be one of the most undervalued tech stocks on the market right now. 

The company also expects to be profitable for the first time this year. That should be the catalyst to unlock value for shareholders in the months ahead. Keep an eye on this underrated growth opportunity. 

Tech stock #2

Even the best stocks get beaten down during market corrections. Constellation Software (TSX:CSU), Canada’s best enterprise software conglomerate, lost 22% of its value in the first six months of 2022. It was dragged down along with the rest of the sector. 

The stock has recovered some of those losses in recent weeks. It’s up 16.5% since mid-June. However, it remains undervalued, in my opinion. The company generated US$335 million (CA$427 million) in free cash flow during the first six months of the year. Assuming annual free cash flow exceeds $850 million, the stock is trading at 52 times cash flow per share. 

The company has also deployed over $1.5 billion in acquisitions during the first half of 2022. These new additions should create immense value in the months ahead and help the company sustain revenue growth for the foreseeable future. That’s why I’ve added exposure to Constellation Software stock during this market correction. 

Tech stock #3

Open Text (TSX:OTEX)(NASDAQ:OTEX) is a relatively boring low-growth tech stock. But in this environment, that’s attractive. The company has managed to sustain its top line, despite the downturn, and is cash flow positive. 

In its most recent fiscal year, Open Text delivered $889 million in free cash flow. That’s 9.4% higher than the previous year. Open Text stock is currently trading at 12 times free cash flow per share and just 3.7 times revenue per share. 

The stock has lost 16.9% of its value year to date. That’s why management has implemented a share repurchase scheme. In the latest quarter, the company repurchased one million shares for an aggregate value of $14 million. Altogether, the company has delivered shareholder rewards worth $415 million in a combination of dividends and buybacks. 

Open Text is an overlooked opportunity for investors seeking stable cash flows in the beaten-down tech sector. 

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 Vishesh Raisinghani has positions in Constellation Software and WELL Health Technologies Corp. The Motley Fool recommends Constellation Software.

More on Tech Stocks

investment research
Tech Stocks

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

Is OpenText stock poised for a 2025 comeback? AI ambitions, a 3.8% yield, and cash flow power make it a…

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

Emerging Canadian AI Companies With Big Potential

These tech stocks are paving the way to an AI-filled future, but still offer enough growth ahead for a strong…

Read more »

Young Boy with Jet Pack Dreams of Flying
Tech Stocks

Is Constellation Software Stock a Buy, Sell, or Hold for 2025?

CSU stock has long been a strong option for high growth, high value stocks. But are there now too many…

Read more »

An investor uses a tablet
Tech Stocks

Canadian Tech Stocks to Buy Now for Future Gains

Not all tech stocks are created equal. In fact, these three are valuable options every investor should consider.

Read more »

dividend growth for passive income
Tech Stocks

2 Rapidly Growing Canadian Tech Stocks With Lots More Potential

Celestica (TSX:CLS) and Constellation Software (TSX:CSU) are Canadian tech darlings worth watching in the new year.

Read more »

BCE stock
Tech Stocks

10% Yield: Is BCE Stock a Good Buy?

The yield is bigger than it's ever been in the company's history. That might not be a good thing.

Read more »

Happy shoppers look at a cellphone.
Tech Stocks

So You Own Shopify Stock: Is it Still a Good Investment?

Shopify (TSX:SHOP) stock has had a run, but there's still room to the upside.

Read more »

A person uses and AI chat bot
Tech Stocks

AI Where No One’s Looking: Seize Growth in These Canadian Stocks Before the Market Catches Up

Beyond flashy headlines about generative AI, these two Canadian AI stocks could deliver strong returns for investors who are willing…

Read more »