3 best tech stocks to buy during a recession


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Recessions do not affect all sectors in the same way. And depending on what’s causing the recession, an industry could get away with virtually unscathed. In the economic downturn associated with the dotcom collapse, employment in the United States fell only 1.3%. During the financial crisis, overall employment fell by 5.4%. In this latest pandemic-induced recession, the number of people at work fell by 14.7%. We have only recovered about four-fifths of the jobs lost.

That hasn’t stopped job-related businesses from thriving. Working day (NASDAQ: WDAY), Paycom (NASDAQ: PAYC), and Intuit (NASDAQ: INTU) have each seen their revenues and profits increase due to the combination of their Software as a Service (SaaS) business models and the need for companies to continue to take care of their employees. Each of these is a wonderful business to add to your portfolio when Wall Street’s is the most negative for the economy. Here’s why.

Two people are sitting at a desk with papers and a calculator doing taxes.

Image source: Getty Images.

1. Working day

Workday targets large enterprises with its cloud platform that combines human capital management with financial applications. To this end, it accounts for more than 50% of the Fortune 500 as clients.

After its IPO in 2012, it was able to grow rapidly by offering a cloud-based product that incorporated many functions that its historical competitors had tinkered with during acquisitions. The cloud application allows it to perform weekly product updates and major feature releases twice a year.

Sales grew 47% per year between 2012 and 2021. For the first six months of its 2022 fiscal year – February through July – revenue increased 19% and total subscription backlog increased 23%. Cash flow from operations continued to exceed sales. A sign that a higher percentage of every dollar that goes in the door goes to the company – and potentially to shareholders. All of this, coupled with the predictability of demand for its service, makes Workday a no-brainer to buy in a recession.

WDAY Revenue Graph (TTM)

WDAY Revenue Data (TTM) by YCharts

2. Paycom

Paycom uses a similar product and business model to generate exceptional returns. It focuses more on small and medium businesses than Workday, especially companies with 50 to 5,000 employees. For this reason, it does not integrate the same financial functionality. But its human capital management software is an integrated cloud-based application suite that has propelled it to 5% market share. It might not seem like much until you see the numbers.

Over the past decade, revenue and earnings per share have grown 16-fold and nearly 100-fold, respectively. Before the pandemic, its profit margin before interest and taxes (EBIT) was almost identical to that of the software titan Adobe. It’s a surprisingly profitable business for a fast growing producer. And he still has a lot of opportunities.

After a decade of revenue growth exceeding 30%, last year’s sales only increased by 14% thanks to the pandemic. But things are slowly picking up. For the first six months of 2021, revenue increased 21% year-over-year. For the full year, management expects a turnover of $ 1.037 billion at mid-term. That would be 23% growth from 2020. If that sounds conservative, it probably is. CEO Chad Richison said he does not expect further growth in the workforce of his customer base. It’s unlikely.

As Jobs (hopefully) recover from the pandemic, Paycom should be able to return to its historic growth rate. It could be boosted by its recent innovation in self-service payroll that allows employees to manage their own payroll. After the product rolled out in July, it already had 1,000 customers at the end of the month.

Through transparent applications, continuous innovation and focus on one market segment, Paycom is expected to continue its robust growth for the foreseeable future. Any significant drop in stocks due to economic uncertainty would be a giveaway for those wishing to hold for the long term.

3. Intuitive

Some may not realize that the company best known for its consumer software TurboTax also dominates the small business financial segment. Its QuickBooks product is said to have an 80% market share in the United States. Of course, many of them are very small entities or self-employed. It is still an impressive statistic.

Due to the disparate focus, the company is organized into four segments, two focused on consumers and two on business. About half of 2021’s revenue came from the small business and self-employed unit, while 37% was generated by the consumer segment.

Not included in those numbers ProConnect – the Intuits service for professional accountants – and Credit Karma – the consumer-focused personal finance app it acquired for $ 8 billion in 2020. This deal was designed to also bring comparison tools for credit cards. as checking and savings accounts, internally. Another recent agreement is targeted at its business segment.

Last month, Intuit announced it would buy the Mailchimp customer engagement and marketing platform for $ 12 billion. The deal should help it capture a greater share of growth spending in the small business middle market. It could also drive the steady 10-15% revenue growth that Intuit generated in the years leading up to the pandemic.

Over the past decade, stocks have climbed over 940%. He may not be likely to repeat this performance. But with products so ingrained in the financial fabric of consumers and small businesses, Intuit is uniquely positioned to market the new services it has acquired. It gives me confidence that any economic downturn that damages stocks would be a great time to add the stock to your portfolio.

This article represents the opinion of the author, who may disagree with the “official” recommendation position of a premium Motley Fool consulting service. We are heterogeneous! Challenging an investment thesis – even one of our own – helps us all to think critically about investing and make decisions that help us become smarter, happier, and richer.

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