James Gerrish, a portfolio manager at Shaw and Partners, predicts a 15% to 20% pullback in the ASX technology sector this year.
In his latest Market Matters newsletter, Gerrish said this would present a good opportunity to buy the dip on the best ASX tech stocks.
Gerrish said:
We remain bullish but watchful of the tech space. Another 15-20% pullback is likely in 2025.
Remember, our mantra this year is "buy the dip", and to do that, we need to be prepared to sell into strength.
Helpfully, Gerrish has let us in on two of his favourite ASX tech stocks and the share prices at which we should buy them if his prediction of a significant sector pullback is correct.
However, he doesn't expect the pullback to occur any time soon.
For now, Gerrish expects ASX tech stocks "to post fresh highs in the coming months".
He remains bullish on tech stocks and expects the broader market to deliver net positive returns this year. But he says the journey will be "choppy."
Gerrish names family location-sharing app Life360 Inc (ASX: 360) and enterprise software solutions company TechnologyOne Ltd (ASX: TNE) as two ASX tech stocks to buy in a dip.
He said:
We are keen on 360, TNE … but the risk/reward isn't enticing at current levels. Watch this space into dips.
2 ASX tech stocks to buy during a dip
Buy Life360 shares 'in the $20 region', expert says
The Life360 share price is $23.60, down 2.8%% at the time of writing today and up 215% over the past 12 months.
Gerrish said he was bullish on this ASX tech stock in the medium term, but its valuation was volatile.
He comments:
We are fans of 360, but we are cognisant that the stock throws up 20% corrections more often than Christmas comes around.
… Life360 corrected 24% after it announced that CEO Chris Hulls had sold down a portion of his shareholding in late December.
In hindsight, we were too fussy, focusing on the average result in late 2024; the sell-down doesn't worry us as he has plenty of skin in the game and has previously announced plans to sell down his position slowly.
Gerrish said Life360 shares were also sold off after the company's third-quarter report in November.
Life360 reported an 18% lift in revenue, which was below analysts' expectations.
He says:
Life360 reported solid revenue growth for Q3 2024, but it wasn't enough at the time for a bullish market …
This is a classic dichotomy of valuing growth over current earnings, with today's profit not relating to the company's $5.6bn valuation.
The company achieved several milestones this quarter, including a partnership with ride-sharing company Uber for location-based advertising.
Analysts covering Life360's US listing expected more in Q3, with the company missing estimates, hence the sell-off.
So, when should ASX investors buy Life360 shares?
Gerrish says:
We like 360 back in the $20 region, where it was trading in December.
Buy TechnologyOne shares at 'about $25', expert says
The TechnologyOne share price is $32.17, up 1.16% today and up 104% over the past year.
Gerrish is bullish on this ASX tech stock over the medium term.
He notes that the company received a mixed reaction from brokers after beating its earnings guidance late last year.
He said TechnologyOne reported a 20% increase in total annual recurring revenue (ARR) and a 17% rise in total revenue.
Gerrish comments:
The numbers were great, but when a stock is trading on ~70x forecasted earnings, they are often not good enough …
This is an excellent business with recurring revenue that attracts many investors. However, it's rich from a valuation perspective, and we don't like the risk/reward ~$30, even though it looks destined to make fresh highs above $32.
We believe that TNE can achieve its goal of $1bn annual reoccurring revenue by FY30, but much of this is already built into the share price, and we believe it's another case of 'buy the dip'.
So, when should ASX investors buy TechnologyOne shares?
Gerrish says:
It's hard to know what TNE is worth given their incredible execution in recent times, but if we price it off its own history, ~$25 is the level.
