3 Stocks You'll Want to Buy in the Tech Sell-Off

Tech investors have enjoyed some big gains over the past year, but some are starting to get anxious. Concerns that rising bond yields and more government stimulus could eventually lead to inflation have spooked some investors who've been putting their money into high-growth tech stocks during the pandemic. 

But the recent tech sell-off shouldn't worry long-term investors. The drop poses a great buying opportunity if you know where to look. We asked a few Motley Fool contributors for a few great tech stocks to buy right now, and Shopify (SHOP -2.37%), Lemonade (LMND -0.46%), and Okta (OKTA -0.65%) topped their list. Here's why.

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Throwing out the baby with the bathwater

Danny Vena (Shopify): With all the market craziness we've seen over the past couple of weeks, it's difficult to know if this is merely a sector rotation out of tech stocks and into pandemic reopening plays, or if we're on the verge of a full-fledged market crash. "A rose by any other name would smell as sweet," or so the saying goes.

Investors are selling off both good companies and bad, or throwing out the baby with the bathwater. This is creating some compelling bargains for companies in the tech sector. One stock that investors should be buying right now is Shopify.

When the e-commerce company announced its fourth-quarter results in mid-February, the numbers that characterized much of past year showed no signs of slowing. Revenue of $978 million grew 94% year over year, while gross merchandise volume (GMV) -- or the value of products sold on its platform -- soared 99% to more than $41 billion. 

These numbers were driven by subscription revenue that climbed 53% and merchandise solutions that surged 117%. At the same time, monthly recurring revenue grew 53% to $83 million, fueled by the high number of merchants that continued to join Shopify's platform, even after a record-setting influx in the third quarter.

The company's increasing leverage kicked in, as net income for the quarter grew to $124 million, up from $0.8 million in the prior-year quarter. This resulted in earnings per share of $0.99, up from $0.01. This illustrates that as Shopify continues to add more merchants and the value of those sales grow, an increasing amount of profits will drop to the bottom line.

It's important to note that even though the surging adoption of e-commerce that accompanied the pandemic may slow, it isn't going away. The U.S. Department of Commerce reported that in the fourth quarter of 2020, online sales grew 32% year over year, and accounted for nearly 16% of total retail sales. Now that consumers have grown accustomed to the ease and convenience of online shopping, there's simply no going back.

With Shopify down more than 23% off its recent highs, the stock looks downright cheap by comparison, giving investors the opportunity to get a top-tier company at a rare discount.

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Is the market souring on this sweet disrupter?

Brian Withers (Lemonade): Lemonade is taking on the established insurance industry with its disruptive customer service model powered by artificial intelligence and chatbots. Customers love that they can get quotes on insurance products (pet, renters, and homeowners) in under two minutes and a third of all claims get paid instantly. But it even goes further by allowing its members to pick a charity to benefit from unused premiums not paid to claims at the end of the year.

This innovative model that puts the customer first is capturing market share. Its "in force premiums," or the sum of all annual premiums in effect at the end of the period, has grown 87% year over year. Customers have grown 56% over the same time period, whereas premiums paid annually per customer rose 87%, and its gross loss ratio is improving. Even its quarter-over-quarter comparisons are strong in the midst of the ongoing pandemic.

Data source: Lemonade. QOQ = quarter over quarter. YOY = year over year.

It seems like the company is firing on all cylinders. So why is the stock down 50% off its all-time high from earlier in the year? There are a couple of reasons. First, tech stocks have been in a sell-off over the last few weeks giving back some of the incredible gains over the last 12 months. Second, reported revenue actually declined 13% year over year to $20.5 million. This may be confusing to investors, but management explained that because of its business model change on July 1, 2020, to use proportional reinsurance, this year-over-year revenue comparison is "not directly comparable." Finally, the market may have also been disappointed with the company's outlook, which came in a bit under analysts' expectations. Add this all up, and savvy investors see a stock that's on sale today.

All in all, the company is executing well on its strategy, winning customers, growing its offerings, and taking market share. Investors would do well to take advantage of the stock's discounted price today with the mindset of holding over the next three to five years (or more). You'll be happy you did.

Image source: Getty Images.

Ignore the noise, this tech stock is still growing fast

Chris Neiger (Okta): Okta, the identity and access management (IAM) company, experienced exceptional growth in 2020, and investors responded by driving the company's stock price up 120% last year. But the company's share price dropped recently after Okta reported its fourth-quarter 2021 results. 

Investors pushed the stock down about 10% earlier this week, but the sell-off was a bit of an overreaction. The company reported a year-over-year revenue increase of 40% in the quarter to $234.7 million. That's still very impressive growth and there's likely more where that came from. Okta's management said that full-year fiscal 2022 revenue will jump 30% at the high end of guidance.

Investors have also been nervous that Okta just spent $6.5 billion to purchase the cloud identity start-up Auth0. But the acquisition will help Okta expand its identity management business to new platforms and services that it currently doesn't reach. Sure, it's a large sum of money to spend, but it should help the company tap further into the IAM market, which is worth $55 billion. 

If investors step back a moment and stop looking at the short-term market volatility, they'll see that Okta had a fantastic year in fiscal 2021 and is still poised for more growth in the upcoming year. On top of that, the company's latest acquisition should boost Okta's position in the fast-growing IAM market and help the company stay ahead of its competition. 

That's why, for long-term investors, Okta's recent share price drop looks like a great opportunity to pick up some shares.