Top 2 tech stocks to buy during a recession

Buying stocks during a recession can be the most emotionally difficult thing to invest in. Unless you time the market perfectly – which is highly unlikely – the companies you buy will continue to sink, and watching the value of your portfolio shrink is painful.

So why buy stocks during a recession? If history is any indication, it may also be one of the best times to put money in the market. For example, if you buy heavy technology Nasdaq Composite In April 2009, near the depths of the Great Recession, and lasting until April 7, 2022, your investment could have grown by 774%. This equates to an average annual return of 18%, which is double what the market traditionally offers.

For long-term investors, investing when stocks are struggling can be one of the smartest decisions you’ll make. datadog (DOC -2.15% ) And Zscaler (ZS -2.23% ) High on my watch list in such a situation. If these stocks see a sharp decline in a weak economy, they will still have the potential to penetrate the market in the long run because of their dominance, competitive advantages, and tailwinds that drive them forward.

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1. Datadog

More companies are becoming cloud native, which means they are expanding their use of technology-based applications and infrastructure. This is where Datadog comes in by providing services to businesses to ensure all of their cloud applications run smoothly, and their network is up and running and secure. The company serves as an eye in the sky for the company’s cloud-based operations, and is a leading platform according to GartnerMagic Quadrant for .

One of its main advantages over competitors is switching costs: The company has products for just about everything a company might need to oversee the cloud, from monitoring network performance to user monitoring to scanning data logs for sensitive information. This creates a thriving ecosystem where once a customer is integrated into multiple services, it is very difficult to get away with it. This may be the reason why Datadog chews are on average to low single digits.

One of the most impressive things about Datadog is its ability to expand its relationship with existing clients. The fourth quarter net retention rate has remained above 130% for the eighteenth consecutive quarter. This means that customers from the fourth quarter of 2020 are now spending 30% more on average as of the latest report, mostly thanks to their adoption of more products. And 33% of customers used four or more features at the end of last year, up from 22% in the same period last year. A similar trend can be seen in the number of users with six or more platforms, which increased from 3% to 10% over the same period. All of this indicates that Datadog is loved by its customers, and the more they become integrated into the Datadog ecosystem, the more difficult it will be to leave.

Many fast-growing tech companies are unprofitable, but Datadog stands out: It teeters on the edge of profitability. The company lost $21 million in 2021, which is down year over year and now represents just 2% of revenue. However, Datadog is not perfect. They are trading 40 times sales – very high rating. However, its leadership and the promotion of competitive advantages are so impressive that they are well worth the pay for it. If a recession drives the stock price down, Datadog will be a roaring buy.

2. Zscaler

Zscaler is in a similar position to Datadog: it is a leader with a strong advantage over the competition and commands a high sales rating 37 times. But Zscaler specializes in “distrust” cybersecurity, which means the company acts as a gatekeeper to business cloud, data, and applications. When an employee tries to access these parts of the job, Zscaler makes sure that it’s actually what he says.

This seems like a highly concentrated segment of the cybersecurity market as a whole, but it still leaves Zscaler with a lot of growth potential. The company’s serviceable market value is $72 billion, and given that the company reported only $860 million in revenue in the subsequent 12 months, the opportunity is still enormous.

The company has attracted more than 5,600 clients, 1,480 of whom spend more than $100,000 annually. While the main risk is competition, the company’s entrepreneurial position must bring continued success. After all, no company wants to skimp on security because sophisticated cyber attacks frequently make headlines. As the world becomes more digital, there will be more of these threats, which means that the demand for Zscaler’s services will rise in the future. This is why I would buy more of Zscaler and keep it long term if the recession pushes the stock to more attractive levels.

This article represents the opinion of the author, who may disagree with the “official” recommendation position of the Motley Fool Premium Consulting Service. We are diverse! Asking about an investment thesis — even if it’s our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.

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