In this article, we will take a look at the top 11 best tech stocks to buy on the dip. To see more such companies, go directly to 5 Best Tech Stocks to Buy On the Dip.
Tech stocks have showed remarkable resilience in 2023 in the face of rising interest rates and an uncertain economic outlook. The tech-heavy NASDAQ index is up over 14% year to date through April 11. But is this rally in tech stocks sustainable? Analysts and investors have sharp differences on the matter but one thing everyone agrees on is that you should buy on company fundamentals and not based on any irrational market assumptions.
“Technology is Interesting Again”
Recently, billionaire Chase Coleman of Tiger Global recommended big tech stocks as the tiger cub believes “technology is interesting again.”
Coleman is bullish on tech due to the rise of new technologies like AI. He referred to the potential benefits of ChatGPT’s integration with Amazon to support the online shopping experience. Taking at an event, Coleman said:
“Think about it in terms of companies investing in these technologies, and how well they use it…It’s going to be gradual. Be patient.”
Coleman’s confidence comes despite his hedge fund posting huge losses suffered due to the tech rout in 2022.
However, some are skeptical of the tech rally.
According to a Bloomberg report, Wei Li, global chief investment strategist at BlackRock Inc., said that the tech outperformance this year “is a bit overdone." Li said that the rally is driven by expectations that the Federal Reserve will start to cut rates.
JPMorgan Asset Management Global Market Strategist Meera Pandi agrees with the notion that the Fed’s policy is the ultimate decider of the tech stocks’ trajectory instead of company fundamentals. In an interview with Bloomberg, Pandi said that history shows that market cycles and economic cycles are not in total synchronization and during recessions markets begin to bottom before the worst of the recession is behind us.
Pandi said that tech sector proved to be somewhat defensive in the last recession (she was referring to the pandemic crisis). She believes many of the companies in the tech sector that are taking the lead today are high-quality, blue-chip companies. But the analyst said she is concerned about companies that are overvalued. Another problem Pandi pointed out relates to concentration. The analyst highlighted that the top 10 stocks in the S&P 500 index account for about 30% of the index and just 20% of the total profits.
While major tech stocks have been gaining value this year, there are a few quality stocks that present an attractive buying opportunity. Amid uncertainty and volatility, those who want to pile into tech stocks should do so based on long-term growth catalysts.
For this article, we first listed down at least 50 notable tech stocks that are down more than 4% over the past six months. We then selected 11 of these stocks with the highest number of hedge fund shareholders. The idea was to select best tech stocks according to smart money investors that are currently down and present an attractive entry point for investors. The list is ranked in ascending order of the number of hedge fund investors.
Best Tech Stocks to Buy On the Dip
11. Vacasa, Inc. (NASDAQ:VCSA)
Number of Hedge Fund Holders: 13
Share Price Decline in the Past Six Months: 71%
Shares of vacation rental platform company Vacasa, Inc. (NASDAQ:VCSA) have lost a whopping 71% over the past six months. Vacasa, Inc. (NASDAQ:VCSA) has been getting hammered after the company posted its weak Q4 report which shows elevated churn. Oppenheiner analyst Jed Kelly downgraded Vacasa, Inc. (NASDAQ:VCSA) and said in a note that churn is on a downward trend throughout the industry.
Despite huge losses, Vacasa, Inc. (NASDAQ:VCSA) could be a long-term stock pick for patient investors. As of the end of the fourth quarter of 2022, 13 hedge funds tracked by Insider Monkey had stakes in Vacasa, Inc. (NASDAQ:VCSA). The biggest hedge fund stakeholder of Vacasa, Inc. (NASDAQ:VCSA) was Jim Davidson, Dave Roux and Glenn Hutchins’ Silver Lake Partners which owns a $79 million stake in the company.
10. LivePerson, Inc. (NASDAQ:LPSN)
Number of Hedge Fund Holders: 20
Share Price Decline in the Past Six Months: 38%
LivePerson, Inc. (NASDAQ:LPSN) stock has been taking it on the chin since the company posted weak Q4 results. After the earnings report, Credit Suisse’s Fred Lee upgraded LivePerson, Inc. (NASDAQ:LPSN) to Neutral from Underperform, acknowledging that the company posted “extremely weak results.” The analyst, however, believes LivePerson, Inc. (NASDAQ:LPSN) is going through a “much-needed restructuring.”
LivePerson, Inc. (NASDAQ:LPSN) recently sold its online psychic reading service Kasamba.
As of the end of the fourth quarter of 2022, 20 hedge funds tracked by Insider Monkey had stakes in LivePerson, Inc. (NASDAQ:LPSN). The net value of these stakes was $129 million. The biggest hedge fund stakeholder of LivePerson, Inc. (NASDAQ:LPSN) was Jeffrey Smith’s Starboard Value LP which owns a $71 million stake in the company.
Here is what Artisan Small Cap Fund has to say about LivePerson, Inc. (NASDAQ:LPSN) in its Q4 2021 investor letter:
“LivePerson is a leading provider of mobile and online messaging solutions. We believe customer service and sales centers are shifting from voice to digital communications, and LivePerson is wellequipped to lead this shift. Its LiveEngage cloud-based platform allows brands to engage with customers across digital channels at scale, more efficiently and more effectively. The market opportunity is substantial and goes well beyond digital conversations in service contexts and into areas such as sales, marketing and possibly social media monitoring. A key part of our thesis when we began our investment campaign in 2018 was the arrival of Alex Spinelli as the company’s CTO. Mr. Spinelli came from Amazon, where he was one of the architects and leaders of Alexa. In addition, Mr. Spinelli brought several well-respected technologists to LivePerson with him. Unfortunately, Mr. Spinelli announced his departure from LivePerson in Q3. In addition to this development, our profit cycle thesis has been stalled as the company makes a round of investments into its sales force which will weigh on margins over the near term. We believe Mr. Spinelli’s replacement, Andrew Hamel, carries the credentials to continue leading LivePerson’s technology efforts. Mr. Spinelli worked for Mr. Hamel at Amazon, and the investments in the sales force have the potential to allow the company to scale its business more rapidly. Still, we are in a holding pattern until we gain conviction that the profit cycle we originally invested in can continue to flourish with these changes.”
9. Automatic Data Processing, Inc. (NASDAQ:ADP)
Number of Hedge Fund Holders: 22
Share Price Decline in the Past Six Months: 5.3%
Automatic Data Processing, Inc. (NASDAQ:ADP) ranks 9th in our list of the best tech stocks to buy on the dip. In March, Automatic Data Processing, Inc. (NASDAQ:ADP) made it the list of dividend growers stocks shared by BofA. The screen ranks S&P stocks that have consistently increased their dividends each year from 1981-2022. In February, Goldman Sachs shared a list of 20 stocks it believes "were punished by investors following 4Q EPS reports but beat margin expectations and where consensus expects margins will expand in 2023." Automatic Data Processing, Inc. (NASDAQ:ADP) was in the list. Goldman said in its note that these companies achieved strong margins in the last quarter of 2022 but underperformed their respective sectors the day after reporting results.
Insider Monkey’s database of 943 hedge funds shows that 49 hedge funds had stakes in Automatic Data Processing, Inc. (NASDAQ:ADP). The net worth of these stakes was $3.5 billion. The biggest hedge fund stakeholder of Automatic Data Processing, Inc. (NASDAQ:ADP) was Fundsmith LLP of Terry Smith which owns a $1.3 billion stake.
8. Upwork Inc. (NASDAQ:UPWK)
Number of Hedge Fund Holders: 30
Share Price Decline in the Past Six Months: 23%
Upwork Inc. (NASDAQ:UPWK) is one of the leaders in the freelance market, whose value could reach about $12 billion through 2028 according to some estimates. While Upwork Inc. (NASDAQ:UPWK) is facing some pressure amid the global macroeconomic challenges, the stock could be a solid long-term opportunity. During the fourth quarter, Upwork Inc. (NASDAQ:UPWK)’s adjusted EPS came in at $0.04, beating estimates by $0.07. Revenue in the quarter jumped about 18% year over year to a total $161.44 million, beating estimates by $2.15 million. Adjusted EBITDA income in the period was $1.1 million, compared to adjusted EBITDA loss of $3.3 million post in the fourth quarter of 2021.
A total of 30 hedge funds tracked by Insider Monkey had stakes in Upwork Inc. (NASDAQ:UPWK) as of the end of the fourth quarter of 2022. The most notable hedge fund stakeholder was David Brown’s Hawk Ridge Management which owns a $44 million stake.
7. Tripadvisor, Inc. (NASDAQ:TRIP)
Number of Hedge Fund Holders: 31
Share Price Decline in the Past Six Months: 14%
In February, Bernstein decreased its rating and price target for Tripadvisor, Inc. (NASDAQ:TRIP) based on the near-term impact of the business transformation the company is embarking on. Bernstein’s Richard Clarke said that Tripadvisor, Inc. (NASDAQ:TRIP)’s plan to focus on high-performing areas only is “highly sensible”. However, the analyst said the plan could affect Tripadvisor, Inc. (NASDAQ:TRIP) in the near term while the transition is set in motion.
On the other hand, Bank of America kept a Buy rating on Tripadvisor, Inc. (NASDAQ:TRIP) as the firm said the guidance by the company looks conservative.
As of the end of the fourth quarter of 2022, 31 hedge funds out of the 943 hedge funds tracked by Insider Monkey had stakes in Tripadvisor, Inc. (NASDAQ:TRIP). The net worth of these stakes is $619 million. The biggest stakeholder of Tripadvisor, Inc. (NASDAQ:TRIP) is Paul Reeder And Edward Shapiro’s PAR Capital Management which owns a $153 million stake.
6. AppLovin Corporation (NYSE:APP)
Number of Hedge Fund Holders: 31
Share Price Decline in the Past Six Months: 10%
AppLovin Corporation (NYSE:APP) in March said that out of the $1 billion in cash and cash equivalents it has, less than $2 million were at the Silicon Valley Bank.
In February, AppLovin Corporation (NYSE:APP) posted its Q4 results. GAAP EPS in the period came in at -$0.21, missing estimates by $0.26. Revenue in the quarter fell 11.4% to total $702 million, beating estimates by $11.83 million. For the first quarter of 2023, AppLovin Corporation (NYSE:APP) expects revenue in the range of $685 million to $705 million versus the consensus estimate of $677.13 million.
Vulcan Value Partners made the following comment about AppLovin Corporation (NASDAQ:APP) in its Q3 2022 investor letter:
“We fully exited AppLovin Corporation (NASDAQ:APP). AppLovin was a mistake that we were still trading and therefore did not discuss in our second quarter letter. AppLovin owns a portfolio of over 300 mobile games and operates an advertising platform for third party gaming apps. Our investment case hinged on the company’s advertising platform data from the owned games business which we believed was its key competitive advantage. Through our recent research, we concluded that management is likely planning to restructure or sell all or some of the owned games business. In addition, while we thought AppLovin’s second quarter results were good, with revenue up 16%, the company lowered guidance on its long-term organic growth opportunity. To achieve their long-term plans, the company is relying on new initiatives which we would categorize as early stage. As our understanding of a company’s competitive advantage changes, we reevaluate the business to determine how this affects our investment thesis. For AppLovin, we determined that the company’s competitive advantage was not as strong as we once thought, and we followed our discipline by selling AppLovin and redeploying capital into companies that we believe have more stable values and attractive margins of safety.”
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Disclosure: None. 11 Best Tech Stocks to Buy On the Dip is originally published on Insider Monkey.