Earlier today, I looked at the bank shares that Bell Potter is recommending investors buy in 2022. You can read about them here.
On this occasion, let's take a look at the tech sector and the shares that the broker believes are the top picks for next year.
Which tech shares does the broker like?
According to the note, Bell Potter is more cautious on the tech sector in 2022 than in previous years due to rising interest rates.
Analyst Chris Savage explained: "Such an environment is negative for high growth stocks which have low or negative cash flows/earnings now and only reasonable or meaningful cash flows/earnings in several years' time."
"With this in mind we are more attracted to stocks in the tech sector with reasonable cash flows/earnings now and which also have reasonable to strong growth outlooks. We believe these sorts of stocks will continue to perform well – even in a rising interest rate environment – given we are still also in a low growth environment," he added.
Here are the picks:
Infomedia Limited (ASX: IFM)
Bell Potter has a buy rating and $2.00 price target on the shares of this leading provider of software solutions to the parts and service sectors of the global automotive industry. After a tough time during the pandemic, Infomedia returned to form in the second half of FY 2021 as lockdowns eased. Bell Potter believes it is onwards and upwards from here.
It commented: "We expect this good organic growth to continue into FY22 and this is consistent with the guidance which is for around 20% revenue growth (split roughly evenly between organic growth and an acquisition). The recent issue has been the sudden departure of the CEO but we don't believe this means there is anything wrong with the company and, rather, when a new CEO is appointed we see this as a likely catalyst for the share price."
Life360 Inc (ASX: 360)
Its analysts remain very positive on this app maker's shares and have a buy rating and $16.25 price target on them. Bell Potter likes Life360's freemium model and ability to convert its user base into paying subscribers. It expects this trend to continue and be supported by recent acquisitions.
The broker said: "The company has also recently announced two acquisitions – Jiobit and Tile – so that now it not only connects and protects people but also pets and things. Yes Life360 is currently not profitable but the unique positioning of the company means it is well placed to disrupt the safety and security market and so achieve strong top line growth for years to come."
TechnologyOne Ltd (ASX: TNE)
Bell Potter also remains very positive on this enterprise software company. It currently has a buy rating and $15.00 price target on its shares.
Its analysts commented: "The key competitive advantage of the company is it has developed a fully integrated SaaS solution of its software and is now switching customers to this solution. The migration is now >50% complete and Technology One is starting to reap the benefits of greater recurring revenue and a higher margin. This combination will in our view drive double digit earnings growth for years to come and, as the migration of customers approaches 100%, we expect the multiple to re-rate to that of a pure SaaS company."
