Tech stocks are having a turbulent time as many valuations shot up during 2020. The risk of inflation now makes highly valued shares prime targets for investors to sell. But even with such risks approaching, I think many UK tech stocks are innovative and well placed to grow strongly long term. Indeed, the prospect of a sell-off may make some of these the best shares to buy now, in my view.
Plenty of room for future growth
IT reseller Softcat (LSE: SCT) is more a tech-enabled company than a tech innovator. Nonetheless, despite not owning any technology, it’s done very well in recent years and has an entrepreneurial and focused management team.
First-half results supported the bull case for the share price. Its half-year results for the period ended 31 January were very good.
Gross profit and operating profit were up 20.4% and 41% respectively. The company also lifted its interim dividend by 18.5%, which is a significant uplift.
In its last annual report, Softcat said that it still only had market share of around 3%. The highly fragmented IT reseller market within the UK, alongside increased digital transformation, present a huge growth opportunity for Softcat.
The use of data in organisations to improve business development, the need for strong cyber security and working from home are all trends that should support financial growth at the firm. For me, this all adds up to make Softcat one of the best shares to buy now.
Another of the best shares to buy now
GB Group (LSE: GBG) is an innovative tech group owning its own software. What it does is help banks, online retailers and companies in other industries know their customer and avoid fraud. It’s best known for identity verification.
The rise of e-commerce, as well as online banking, are two trends that I think are likely to keep boosting the shares. I see investing in the group as a way of tapping in to the increased digitalisation in our lives. GB Group also has solid fundamentals, and it’s profitable with high margins.
What are the risks?
As with any tech share, there’s a risk a competitor comes along and provides better software, which could have a massive impact. As margins are high in software, competition is intense.
There’s also a valuation risk with GB Group. Earnings growth at the technology company has been modest, yet it trades at a price-to-earnings (P/E) ratio of around 42. However, this is broadly in line with other UK tech shares and around the same level at which the ratio has been for a while.
Finally, GB Group could be hit by a wider tech sell-off. Fears of inflation and the strong rise in tech stock prices in 2020 both mean investors could sell out and invest their money in so-called value shares instead.
While there clearly are risks with both Softcat and GB Group, I’m focused on the opportunities. Both have huge markets, lots of customers, strong finances and are established companies. That makes them among the best stocks to buy now, in my opinion and I’ll consider adding them to my own portfolio.
