Written by Adam Othman at The Motley Fool Canada
Each sector/industry has specific trends and vulnerabilities that may not always align with the market. If the difference is large enough and persistent, the sector/industry becomes contrarian and can be used as a hedge against weak market conditions. That’s the case with gold.
The tech sector, however, has a different relationship with the market. Sometimes, it’s bullish when the market is bullish, but in other cases, it may go into correction mode even if the market/the TSX as a whole is going up. Then there are exceptions within the sector — i.e., stocks that trend contrarian to the rest of the sector/industry.
After taking all these factors into account and based on its current performance, there is one tech stock you should consider adding to your portfolio for the upcoming bull market.
An e-commerce stock
Shopify (TSX:SHOP) is not just an e-commerce stock. It’s the e-commerce stock in Canada. It’s the public company that dethroned the largest bank in Canada from its position as the most valuable publicly traded company in the country. It was also counted among one of the best growth stocks in Canada, at least until the brutal correction caused the stock to lose over 82% of its value at one point.
However, the stock has started its recovery journey and has shot up about 73% this year alone. The positive market sentiment fueling this recovery may be augmented by a bullish market trend.
There is also a more tangential connection of a bull market stirring more economic activity and an acceleration in e-commerce adoption/growth. This can give an organic boost to the company and, by extension, the stock.
Despite its massive decline and a 60% discount from its 2021 peak, the stock is nowhere near undervaluation. It’s still quite overvalued, but there is significant improvement in some other fundamental areas. Its revenue is growing at a powerful pace, and it posted a positive operating income in the most recent quarters.
The company also carries a minimal amount of debt compared to its market cap and revenue and has a sizable cash reserve at its disposal. The free cash flow is also growing at a power rate and may help the company reach its growth goals without becoming financially overleveraged.
Shopify stock may not experience growth similar to the one it had before, but its current momentum is quite significant. If it can ride this momentum for just a couple of years, bolstered by a bull market, it may be counted among the best-growing tech stocks once again. Its current growth pace and the boost a bull market may offer are reasons enough to consider adding this tech stock to your portfolio.
The post 1 Tech Stock You’ll Be Glad You Bought When the Bull Market Roars appeared first on The Motley Fool Canada.
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