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The tech sector is in a bearish market – time for a reversal?

Most of the high-flying tech stocks during the COVID-19 pandemic are now deep into bearish territory. So what are the top three stocks worth taking a chance on?

The Nasdaq 100 index is close to its all-time high levels, but that does not mean that all tech companies are doing great. In fact, most of the high-flyers doing the COVID-19 pandemic are well off their highs, in some cases more than -70%.

A bearish market starts when a stock or an index falls more than 20% from its highs. In the tech sector, many companies have already surpassed that threshold, showing that there is money to be made on the short side as well, even though the Nasdaq 100, the tech sector’s index, remains in bullish territory.

For instance, some of these companies saw their stock price rising during the pandemic as investors speculated on meme stocks. Of course, a reverse in fortune seems natural, but are there other companies in the tech sector which are attractive at the current valuation?

Here are some names to consider: Alibaba, Palantir Technologies, and PayPal.

Alibaba

Alibaba is down over -55% from its highs as it was one of the victims of new regulations imposed by the Chinese government. Yet, this company is growing at an impressive rate, with plenty of resources to expand its business and now trading at an attractive valuation.

For instance, the P/E Non-GAAP (TTM) is just shy above the sector median. It used to be much higher, but the decline in the stock price led to a decline in the ratio, and now sits at 14.32 compared to 13.64 the sector median. Moreover, the annual revenue growth is close to 40%, much higher than the sector median.

Palantir Technologies

Palantir Technologies grows its revenue even faster, at an annual rate of 43.12% compared to the 16.16% sector median. Moreover, it operates with a gross profit margin of 77.48%, much higher than its peers.

Yet, the stock price is down considerably from its highs. It fell more than -45.1%, and the decline in price makes the company an attractive investment.

PayPal

PayPal is down -37.3%   from its highs and provides an interesting opportunity for contrarian traders. This is a company with a strong cash flow position and a gross profit margin higher than the sector median. At the current price, the valuation declined significantly, yet the business model remains strong.

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