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Broker picks top 3 ASX tech stocks for FY20

Technology is on track to become the second-best performing sector on the market in FY19 as it rallied around 20% over the past year when the S&P/ASX 200 (Index:^AXJO) (ASX:XJO) index gained a more modest 7%.

The strong showing is driven by the likes of the Afterpay Touch Group Ltd (ASX: APT) share price and WiseTech Global Ltd (ASX: WTC) share price which are up 170% and 75%, respectively.

Some believe many in the sector now fully or over-priced, but Bell Potter believes there are still gems to be found for those willing to do a little digging.

Re-rating candidate

To help you along, the broker has nominated the top three tech stocks to buy ahead of the August reporting season – and these are stocks that haven’t been getting much attention from the market.

The first is Integrated Research Limited (ASX: IRI), which is Bell Potter’s top pick following the software developer’s record first half result in February and a strong quarterly trading update.

Despite this, the stock has only managed to record a gain of less than 2% over the past year but Bell Potter believes the stock will re-rate further at its full year results.

Bell Potter has a “buy” recommendation on the stock with a price target of $3.50 a share.

Buy the dip

The second stock on the list is Technology One Limited (ASX: TNE) after its share price took a beating last month on a poorly received half year result (its financial year end is September).

But the broker thinks the sell-off is overdone and describes the results as only being “slightly disappointing”.

“But we are confident in a strong 2HFY19 result and, like last year, expect the stock to rally in the lead up to and following the full year result,” said Bell Potter.

The broker has a “buy” recommendation on the stock with a $9 a share price target.

Sporting hero

Finally, Catapult Group International Ltd (ASX: CAT) is a new pick for the broker. Bell Potter believes there are a number of positive share price catalysts for the sports technology group.

The broker also believes Catapult will achieve its FY19 guidance, bring forward the positive free cash target by 6-12 months, appoint a new CEO and set FY20 guidance that shows strong growth in earnings before interest, tax, depreciation and amortisation (EBITDA).

Bell Potter has a “buy” rating on the stock with a $1.50 a share target price.

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Brendon Lau owns shares of AFTERPAY T FPO. Connect with him on Twitter @brenlau.

The Motley Fool Australia's parent company Motley Fool Holdings Inc. owns shares of Catapult Group International Ltd, Integrated Research Limited, and WiseTech Global. The Motley Fool Australia owns shares of AFTERPAY T FPO. The Motley Fool Australia has recommended Catapult Group International Ltd. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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