SA link - Bert Hochfeld Tech Stocks to buy

Worth the read: The Best Tech Stocks to buy during a dip.

Crowdstrike
Asana
Datadog
Affirm
Shift4
Pure Storage
Anaplan
Elastic
JFrog

InDepth Analysis in the link below:

https://seekingalpha.com/article/4416570-best-tech-stocks-bu…

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The commentary in specific is quite helpful to contextualize our current situation. Specifically regarding macro factors affecting “sector rotation”:

"I went further in this article in saying that in my career, there have been plenty of times in which the market behaved in an “irrational fashion” and since it is irrational, it is not easy to call bottoms. I certainly remember the “irrational exuberance” comment-but not when it was made, and what happened thereafter.
Why am I so insistent on my viewpoint. It seems to me that what has been missed, ignored or in someway glossed over, is just how strong business has been and seems likely to remain in the IT space. I am an old-fashioned fundamental analyst. I have done more DPV analysis-well I might have said hot dinners-but I have had plenty of those, hot, cold and in-between.
Part of the equation relates to a discount rate and the discount rate, in some fashion relates to longer-term interest rates. But folks, if a company raises its growth rate significantly, if its profit margins (free cash flow) is greater and if it grows at hyper rates for longer-logically its valuation is higher.
All of those things are happening and will continue to happen. That doesn’t mean my recommendations will work tomorrow or next week-it does mean that the market is disconnected from business realities and that will hardly be the first time.
I will finally take on the opinion of the person who thinks this is 2000 again. I have also written on that subject before. I was there, and my memory for the processes of the era is unflagging. The problem with much that happened in those years was a combination of fraud, barter transactions called revenue, and technology that didn’t work. There is a reason for the passage of Sarbanes-Oxley. The companies that are in the high-growth category today are real, there revenues are real, there customers are real, and their customers more and more cannot compete without using their services. I am sure that there are failed projects these days-that is inevitable. But compared to the shelfware of 2000 the difference is enormous.
"

I don’t necessarily agree with all of his picks unless the portfolio is diluted to 50 companies or so, but, there is good commentary to support his reasons.

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Part of the equation relates to a discount rate and the discount rate, in some fashion relates to longer-term interest rates. But folks, if a company raises its growth rate significantly, if its profit margins (free cash flow) is greater and if it grows at hyper rates for longer-logically its valuation is higher.

The question of valuation keeps coming up. IMHO it really a waste of time to make all those projections and calculations based either on trends or discount rates. Trends frequently terminate unexpectedly, and the prospects for some Saas companies are so favorable that it isnt possible to estimate a useful discount rate. It may even be true that the current "irrational " exuberance is just a manifestation of
of the market in its collective wisdom establishing an appropriate ('true ?) discount rate.

IMHO the most important factors in stock selection are: The need for the product and its derivatives. (e.g. Everyone requires security for every transaction)

The size of the market (e.g One can imagine an infinite set of transactions each requiring security)

The extent of market penetration (e.g. I learned recently that one of our favorites (maybe SNOW) had about 2.7% of the estimated (and expanding )TAM

Finally does the CEO convincingly make the case for his company’s growth prospects in the near term and beyond. What is his true level of CONVICTION.?

I find that these factors lead me in general to better selections. Current performance and growth numbers are useful as screening devices but I believe there are no formulae possible based on these numbers which make an airtight future case. In some cases not even a credible one.(try Zoom) And so I don’t try to build projective models and I take those which are published with several grains of salt.

For what they are worth I wanted to share some random thoughts about my approach.

cheers

draj

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