Due largely to a selloff of U.S. tech stocks and the de-rating of high PE shares, the Australian tech sector has come under significant selling pressure in recent months.
In fact, the selling has been so severe that it has given back all its year to date gains and is now flat at Christmas. The compares to a gain of over 23% for the sector earlier in the year.
While this is disappointing, I think it has created a buying opportunity just in time for 2019.
Three top tech shares that I would buy when the market reopens are as follows:
Appen Ltd (ASX: APX)
The Appen share price has fallen heavily from its 52-week high, leaving it trading at approximately 25x estimated FY 2019 earnings. I think this makes the shares of the global leader in the development of high-quality, human annotated datasets for machine learning and artificial intelligence great value. This is because of its strong long-term growth potential thanks to its exposure to machine learning and AI markets that are expected to increase significantly over the next decade.
NEXTDC Ltd (ASX: NXT)
NEXTDC is a data centre operator which has been a big winner from the cloud computing boom. Over the last five years the company has experienced increasing demand for its services, leading to customer numbers growing by a compound annual growth rate of 49% and interconnections by a compound annual growth rate of 76%. The good news is that this trend is expected to continue in the future, putting NEXTDC in a great position to deliver strong earnings growth as it scales. Its shares are currently pricing in a lot of future growth, though, making it a high risk option.
Xero Limited (ASX: XRO)
I think this cloud-based accounting software company is one of the best options in the tech sector right now, especially after its impressive start to FY 2019. Xero recently reported a 37% jump in first half revenue to $256.5 million thanks to the addition of 193,000 net subscribers and a 6% lift in its average revenue per user metric. Given the quality of its product and the continued shift to online accounting from small to medium sized businesses and accountants, I expect more of the same in the second half and beyond.
