The U.S. equity market reached new highs in October 2021, after struggling in the previous month. Despite rising inflation, uncertainties about taxation policy, and ongoing labor shortages, investors have been quite optimistic about the third-quarter earnings season. Some investors find it unappealing to buy stocks when they are trading at such high levels. But a closer examination shows there are still a few fundamentally strong stocks that have seen sharp corrections in 2021 while riding on solid secular tailwinds, making them worthy of consideration.

If you've paid your bills, funded your emergency account, set aside something for retirement, and have some cash leftover, then using it to pick up shares of enterprise software player Coupa Software (COUP) and digital operations management pioneer PagerDuty (PD 0.92%) just might be a smart move right now.

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1. Coupa Software

Coupa Software's cloud-based software platform helps more than 2,000 corporate customers in business spend management (BSM) -- procurement, supply chain management, and finances. The company leverages the collective buying power of these clients to enable them to purchase goods and services from over 7 million suppliers on its platform at a discount. According to market research firm Gartner, Coupa is currently the clear market leader in the procure-to-pay software category. The company has also launched new products such as an end-to-end global payment platform called Coupa Pay and a marketplace for customers to purchase third-party solutions from other BSM players called Coupa App Marketplace.

Coupa Software has processed business spend transactions worth over $2.8 trillion. The company analyses the huge amount of data collected from these transactions with artificial intelligence algorithms, to help customers make faster and more effective real-time supply chain decisions. As more customers join Coupa's platform, the prescriptive algorithms become even stronger. This, in turn, results in a strong network effect.

In the second quarter of fiscal 2022 (ending July 31), Coupa's revenue was up 42% year over year to $179 million, while calculated billings grew 49% year over year to $195 million. While not yet profitable, the company generated positive operating cash flows and adjusted free cash flows of $41 million and $37 million, respectively.

Despite the company's many merits, Coupa's share price has declined by over 30% so far this year, mainly due to supply chain disruptions across the world. However, the ongoing chaos can prove to be an underappreciated opportunity for the company, considering that more corporate customers now want to de-risk their supply chains. With the company aiming to serve over 100,000 target customers for a target addressable market opportunity worth $94 billion, there is significant runway left for this stock with its $17.8 billion market capitalization.

2. PagerDuty

A pioneer in digital operations management, PagerDuty's software platform collects real-time data from all applications in a customer's digital ecosystem and then analyses it using artificial intelligence and machine learning algorithms to identify pain points in business-critical systems. After identifying the potential problem, the platform tries to prevent a subsequent software outage or downtime through an automated response or by alerting concerned parties.

The company's platform can be integrated with over 600 third-party applications, making it capable of collecting data from a range of software systems. This broad proactive approach to digital operations management has enabled the company to win around 18,000 clients, with over 65% belonging to the Fortune 100 and over 45% belonging to the Fortune 500.

PagerDuty stands to benefit significantly from the rapid increase in spending on corporate digital transformation. According to IDC, global spending on digital transformation is expected to reach $6.8 trillion by 2023. PagerDuty estimates its total addressable market opportunity to be worth $36 billion.

The company's success in its cross-selling activities is evidenced by its total dollar-based net retention of 126% in the second quarter of fiscal 2022 (ending June 30, 2021). That means existing customers spent 26% more on PagerDuty's products. The company also reported a solid 95% renewal rate, highlighting the stickiness of its customer base.

PagerDuty also enjoys significant revenue visibility, considering that more than 98% of its total revenue is derived from subscriptions. The company's freemium pricing strategy has played a pivotal role in expanding its customer base. While the new customers start with the free version of the product, they eventually graduate into becoming paying customers. Currently, only 14% of the technology workers employed by PagerDuty's Fortune 100 clients are using the company's products. Hence, there remains a significant runway for further penetration even in the existing customer base.

PagerDuty is also seeing accelerated growth in its high-value customers, with the number of customers spending more than $1 million annually growing by 63% year over year in the second quarter. The number of customers spending more than $500,000 grew by 34% year over year, while those spending over $100,000 rose year over year by 36%. Bigger customers provide resilience to the company's business model, even in times of heightened macroeconomic uncertainty.

Since going public in April 2019, the company has reported 25%-plus year-over-year quarterly revenue growth. PagerDuty also has a stellar adjusted gross margin of over 84%. The company is not yet profitable. But the stock price is currently down by over 28% from its 52-week high. Hence, in the backdrop of this pullback, you should consider adding this company to your portfolio.