Stock Up Sale
The economic indicators hint at a recession. And when a recession comes, the most affected industries are the ones that depend on consumer confidence for revenue. The 2020 tech stock meltdown showed its dependence on consumer confidence. Most tech stocks lost 50-70% value. But that doesn’t stop technology from defining the future.
A profitable way to make the most from tech stocks is the way Buffett invests in Apple.
How Warren Buffett invests in tech stocks?
Warren Buffett earned an average annual return of 10% in the last 20 years. Berkshire Hathaway doubled the money in some stocks and lost in some. It also reported a loss in a few years, but the long term, returns were positive. One of his investing strategies is to reduce the average cost per share by buying the stocks he is bullish on at its lows and booking profits on cyclical peaks when the market is bullish.
For instance, Buffett started buying Apple shares in 2016 when they dipped significantly. In these seven years, he purchased Apple shares 11 times and sold them five times. That sums up his quote: “Be fearful when others are greedy and greedy when others are fearful.”
Whenever your growth stock gives you super-normal returns, book profit and buy it again at the dip. You can use this technique to create a portfolio with an average annual return of more than 10%.
Two top tech stocks to buy in a recession
Apple is one of Buffett’s most profitable investments. What could be your Apple card that you buy in a recessionary dip and sell in a recovery rally? Here are two tech stocks that can beef up your portfolio during recovery.
BlackBerry
BlackBerry (TSX:BB) stock dipped 66% in the tech stock selloff (from November 2021 to December 2022). The dip came as the stock was trading at an inflated price of around $12 created by the Redditor’s short sale. To add to this dip were its weak fundamentals as its cybersecurity revenue fell due to delays in government contracts. Its Internet of Things (IoT) revenue fell, as supply chain issues affected automotive production. While the supply issues eased, a looming recession keeps revenue at a standstill.
Governments and companies have delayed their IT spending, while automotive demand is slowing amid recessionary fears. BlackBerry has been using this time to secure more design wins. It even secured the first design win for its latest IVY vehicle intelligence platform. IVY populates your vehicle data and connects all the associated companies, like car insurance, with your vehicle. It will open a new revenue stream for BlackBerry.
All these design wins have created a QNX royalty revenue backlog of $640 million that BlackBerry will realize, as automotive production picks up. This pent-up revenue increases the stock’s chances of a recovery rally when economic conditions improve.
After reaching a low of $4.3 in December 2022, BlackBerry stock jumped 37% in January. In the last 12 months, the stock witnessed five dips and recoveries, with each recovery rally between 25% and 30%. The recovery happens, as investors expect the company to realize the pent-up revenue.
You can buy 150 shares of BlackBerry for $750 in a recession when it trades at or below $5. You can sell 50 shares at $6.25 (up 25%) and another 50 at $6.75 while retaining 50 shares for the longer-term rally when the company realizes the royalty revenue.
Hive stock
Hive Blockchain (TSX:HIVE) stock lost 90% of its value after the crypto bubble burst. But this blockchain company has a stockpile of Bitcoin and Ethereum, the most valued cryptocurrency that has survived and grown in 13 years. The value of crypto depends on user confidence and economic conditions.
Hive is venturing into other use cases of blockchain and artificial intelligence to diversify its revenue streams. Several industries are adopting blockchain technology to decentralize the process. A stock price at or below $4 is a good buying point, as the stock can recover and grow over $6.
You can apply the above technique for Hive to book short-term gains and lock in long-term growth.
