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Tech Stocks: Are They Attractive after Recent Pullback?

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The US-China trade war has come back to haunt markets and tech stocks. The recent escalation between the US and China sent the markets falling on Monday. So far, Monday was the worst day for investors in 2019. All of the major ETFs and indices lost considerable value.

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Tech stocks were routed in the last two trading sessions

Tech stocks led the sell-off. Investors have been concerned about a slowdown in tech spending after NetApp’s preliminary guidance on August 2. The concerns impacted tech stocks in data storage and software verticals. However, a sell-off of this magnitude gives investors an opportunity. Is it time to get greedy when others are cautious?

The following tech stocks have lost considerable value. However, they’re attractive since their growth story is far from over.

ServiceNow

Currently, ServiceNow (NOW) is trading at $256.81 per share. The stock has lost 15.0% since July 11. ServiceNow has fallen 7.4% this month. ServiceNow stock is trading at a forward PE ratio of 60x. Compared to the earnings growth of 29.3% in 2019 and 33.2% in 2020, the stock is still trading at a premium. ServiceNow shares rose 1.2% in pre-market trading on Tuesday. The company led market returns and outperformed several tech stocks over the years. Analysts gave ServiceNow a 12-month target price of $316.16 and upside potential of 23.0%.

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Arista Networks

Arista Networks (ANET) is trading at $230.95 per share. The stock has lost 20.0% since July 22. Arista Networks has fallen 15.5% this month despite a stellar second-quarter performance. The company is trading 30.0% below its 52-week high. The stock is trading at a forward PE ratio of 21.9x—compared to its earnings growth of 21.0% in 2019 and 9.0% in 2020. The stock isn’t overvalued. Arista Networks shares rose 2.3% in pre-market trading on Tuesday. Analysts gave Arista Networks a 12-month target price of $297.42 and upside potential of 29.0%.

Square 

Square (SQ) is trading at $64.85 per share. The stock has lost 21.0% since July 12. Square has fallen 19.0% this month. The company is trading 36.0% below its 52-week high. The stock is trading at a forward PE ratio of 58.4x. Compared to Square’s earnings growth of 61.7% in 2019 and 46.1% in 2020, the stock is undervalued. The shares rose 1.6% in pre-market trading on Tuesday.

Square is another outperformer among tech stocks. However, the stock has been trading sideways. Analysts gave Square a 12-month target price of $84.03 and upside potential of 30.0%.

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Okta 

Currently, Okta (OKTA) is trading at $126.27 per share. The stock has lost 11.0% since July 26. Okta has fallen 3.5% this month. The company hasn’t posted a non-GAAP profit yet. However, the company’s revenues will likely increase 37.5% in fiscal 2020 and 31.0% in fiscal 2021. The shares rose 1.8% in pre-market trading on Tuesday. Analysts gave Okta a 12-month target price of $124.84 and upside potential of -1.1%.

Splunk leads enterprise tech stocks

Splunk (SPLK) is trading at $122.47 per share. The stock has lost 13.0% since July 26. Splunk has fallen 9.5% this month. The company is trading 15.0% below its 52-week high. Notably, the stock is trading at a forward PE ratio of 52.x compared to its earnings growth of 36.1% in 2019 and 30.4% in 2020. The stock is overvalued. The shares rose 1.7% in pre-market trading on Tuesday. Analysts gave Splunk a 12-month target price of $153.05 and upside potential of 25.0%.

Tech stocks are attractive for long-term investors 

Investors need to follow these tech stocks closely. Every price drop provides an opportunity. These stocks are bound to move higher. High-growth tech stocks usually trade at a premium and command lofty valuations, which shouldn’t deter investors.

The market will be choppy until the trade war is resolved. However, a sell-off always provides an opportunity. Tech stocks have a high beta, which means they will fall lower than the broader index in a downturn. Tech stocks will stage a strong comeback in a bull run.

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