UK tech stocks: 3 of my top picks for 2022 and beyond

James Reynolds thinks UK tech stocks represent an undervalued and under-utilized part of the stock market that will go through the roof. He discusses this top picks for 2022.

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Tech stocks offer some of the best value for money on the market, in my view. With low overheads in comparison to other businesses, they can become money printing machines. Amazon, Google, Microsoft, and Facebook are some of the most highly valued companies on the stock market. But this means investors have already found their value. Lots of investors, including Charlie Munger, are looking to Chinese counterparts in the hope that history will repeat itself.

But I think we have some excellent tech companies right here in the UK.

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Frictionless transfers

Wise (LSE: WISE) is a company that facilitates money transfers and currency exchanges in near real time. This tech company just went public earlier this year and exploded in value, reaching a high of 1,140p in September. But the share price has, in recent months, been seeing a consistent downtrend and has fallen to 762p. This is to be expected as the market tries to determine the true value of the company.

Wise has increased revenue year on year, but has so far kept profit margins small as it continues to expand its operations. I do think that reduced travel over the next few months could push the share price down further. But revenue actually increased over the pandemic months, which tells me there is demand for this service regardless of how many people go on holiday. I’ll definitely be adding it to my portfolio.

Public sector systems

Idox Group (LSE: IDOX) builds software and data collection programmes for clients across the UK. Its largest customer base is the public sector as councils and government agencies use systems Idox designs to help with collecting and organizing important data. Just this week the Scottish Council of Comhairle nan Eilean Siar began using an Idox software programme to help organize its building and planning permissions data.

Idox currently operates with a very small profit margin and if anything goes wrong this could upset the company’s outlook.

But, once a computer system becomes entrenched in a company or institution and all of its employees learn to rely upon it, then it often becomes very difficult to remove. If this happens then I think the sky’s the limit for Idox.

Idox currently trades for a very low 69p and I’ll be adding it to my portfolio shortly.

Cyber security tech

Darktrace (LSE: DARK) has been in the headlines a lot this year. Like Wise, it exploded into value and rushed all the way up to the FTSE 100 in just a few months. But also like Wise it has seen a big fall in value as insiders sell off their shares and it has failed to grow fast enough to justify the high price.

Despite this, Darktrace has been growing. Revenues are up and expected to continue this way over the next few years. I definitely think that the share’s all-time high of 945p was unrealistic, but the current price of 397p is more reasonable. There could still be further downward inertia as shareholders lose their nerve, but the business remains strong, offering a high-quality product on a subscription model. I’ll be adding it to my portfolio but don’t expect to see it pay off for several years.

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James Reynolds has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

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