Many FTSE 100 shares have suffered due to the tech-sell off in recent months. My strategy has always been to buy and hold for the long term, which tells me there could be some bargains out there currently. I believe Avast (LSE:AVST) could be one such bargain. Here’s why.
Tech-sell off explained
Tech stocks are seen as growth stocks with an element of added risk. Due to recent macroeconomic headwinds such as soaring inflation and rising interest rates, investors have turned towards safer defensive options. This has meant many tech stocks have suffered massively.
So let’s take a closer look at one tech stock I believe could be a shrewd addition to my holdings. As a quick reminder, Avast is a cyber security business that adopts cloud-based and data-driven approach to offer security solutions for home and business users.
So what’s happening with Avast shares currently? Well, as I write, they’re trading for 717p. At this time last year, the stock was trading for 582p, which is a 23% return over a 12-month period. The shares spiked this month when the Competitions and Market Authority (CMA) cleared tech giant Norton Lifelock’s acquisition of Avast for over $8bn. Both firms have different specialties and envisage capturing further market share in a competitive marketplace through the deal.
The investment case and my verdict
So let’s look at some bull and bear aspects of Avast shares. I’ll start with some positives.
First off, the deal for Avast to become owned and operated by Norton, is a big deal. This is because Norton is one of its direct competitors but also offers it another layer of diversification as well as further profile and presence. Norton specialises in other aspects of cyber security compared to Avast and is much bigger in stature. All this could boost performance and returns, in my opinion.
Next, Avast has a good track record of performance growth in recent times. I am aware that past performance is no guarantee of the future. However, looking back, I can see that it has grown revenue and gross profit for the past four years in a row.
Finally, Avast shares would boost my passive income stream through dividends. At current levels, a dividend yield of 2.5% is enticing to me. I am aware that dividends can be cancelled, however.
So to the bear case. Competition in the cyber security sector is intense. This could hinder any growth for Avast, and impact any returns I hope to make. In the CMA’s report, it said it cleared the takeover due to no competition concerns. This was primarily linked to Microsoft’s evolving cyber security products. Other major players in the market could have a say in Avast’s performance moving forward. One name that springs to mind is McAfee.
Overall I’m buoyed by the takeover that I believe could take Avast to new heights. Despite the shares jumping due to the CMA green light, I still think they could climb further. For this reason, I would be willing to buy the shares for my holdings. In addition to this, the passive income opportunity helps me build an investment case too.
