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The top five ASX tech stocks for February 2023

After taking a beating in 2022, ASX tech stocks have the potential to deliver strong returns for investors in 2023, especially if monetary policy shifts improve business outlooks.

Source: Bloomberg

Tech stocks both at home and abroad took a hammering in 2022, as central banks around the globe ratcheted up interest rates and equity tumbled across the board.

The Nasdaq fell over 33% in 2022 after posting losses in all four quarters, for its sharpest decline since 2008 and its third-worst annual performance on record after the GFC and the Dot Com crash.

Australia's top tech stocks, many of whom have extensive international operations in overseas markets, also performed dismally last year. Key companies including Xero, Megaport and Frontier Digital Ventures all saw their share prices fall by over 50% during 2022.

Where there's crisis there's often also opportunity, however, so the rout endured by ASX tech stocks could lead to rebounds in 2023. This could especially be the case if central banks become more dovish, the general business outlook improves, or companies devise innovative means to weather adverse conditions.

Tech stocks are known to be resilient and are likely to improve in performance when market sentiment warms up as investors acclimatise themselves to new conditions.

Here is a list of the top five ASX stocks for investors to consider if they are hoping for a rally in the beleaguered global stock sector.

1. Megaport Ltd (ASX: MP1)

2. WiseTech Global (ASX: WTC)

3. Xero (ASX: XRO)

4. Frontier Digital Ventures (ASX: FDV)

5. Dicker Data (ASX: DDR)

1. Megaport Ltd (ASX: MP1)

Megaport is a provider of cloud infrastructure services to customers, claiming to be at the 'leading edge of cloud connectivity.' It touts its ability to provide these services to over 2640 clients in a rapid, secure and convenient manner, using 120 unique data centre operators and over 365 service providers.

Megaport's share price took a hammering in 2022, plunging by around 65% year-to-date by December and still languishing at a 40% decline over the past year

Despite this poor performance, Megaport's business metrics posted improvements in the first quarter of FY23.

These included a quarter-on-quarter rise in monthly recurring revenue of 9% to $11.6 million and an increase in underlying MRR of 6%

2. WiseTech Global (ASX: WTC)

WiseTech Global is a logistics software company whose flagship product, CargoWise One, serves as a platform for the automation and analysis of supply chain operations.

More than 18,000 logistics organisations in 170 countries make use of WiseTech’s software, including 24 of the top 25 global freight providers and 41 of the world’s top 50 third-party logistics providers.

WiseTech's share price could receive a boost in 2023 from efforts to expand into the North American market via its recent acquisition of US-based Envase Technologies.

'This is a strategically significant acquisition in landside logistics, which extends and strengthens our position in one of our six key CargoWise development priority areas,' said WiseTech CEO Richard White about the acquisition.

Envase, a provider of transport management system software for the trucking and logistics sectors, has over 1,300 North American clients and could provide WiseTech with an additional US$35 million in revenue in 2023.

WiseTech is funding the US$230 million acquisition with a mix of 70% cash and 30% new WiseTech Global shares.

3. Xero (ASX: XRO)

Cloud-based accounting company Xero says it provides its software services to more than 3 million subscribers globally, including small businesses, accountants and bookkeepers.

According to Xero, these services make it easier for small businesses to perform a range of accounting and bookkeeping operations, including bill payments, expense claims, acceptance of payments, payroll and purchase orders.

Xero's share price plunged in 2022 and is still down over 30% over the past year.

Goldman Sachs has become upbeat about the company, however, with a recent broker note giving Xero a buy rating and a price target of $109.00.

'We see Xero as very well-placed to take advantage of the digitisation of SMBs globally, driven by compelling efficiency benefits and regulatory tailwinds,' the broker said.

'Following the recent underperformance (absolute/relative), we see an attractive entry point into a compelling global growth story and our preferred large-cap technology name in ANZ, and are Buy rated (on CL).'

4. Frontier Digital Ventures (ASX: FDV)

Frontier Digital Ventures is an online marketplace company that focuses on opportunities in emerging markets. Its operations include 16 'market-leading companies operating across 20 markets,' in regions including Asia, Latin America, the Middle East and North Africa.

While Frontier's share price has risen by 20% since the start of the year, it's still down more than 40% over the past year, and at just above $0.84 remains beneath a price target of $1.28 set by Morgan in December.

Frontier nonetheless managed to achieve growth in its portfolio of geographically diverse operations in 2022, despite the disruptions caused by Covid-related restrictions and hawkish monetary policy.

In the third quarter of 2022, Frontier posted record quarterly EBITDA, with all three of its operating regions posting positive EBITDA for the first time concurrently.

5. Dicker Data (ASX: DDR)

Established in 1978, Dicker Data bills itself as a long-standing veteran of the Australian information technology sector with over four decades of experience.

The company is a distributor of hardware, software and cloud services and has an exclusive partner base of more than 6,000 resellers.

Dicker’s portfolio of products encompasses a wide variety of Tier 1 global brands, including Cisco, Citrix, Dell Technologies, Hewlett and Packard Enterprise, HP, Lenovo and Microsoft.

Analysts from Morgan Stanley appear upbeat about Dicker Data in 2023, retaining their overweight rating with a $13.00 price target for the computer company.

The company's share price is currently south of $11.00, after falling more than 15% over the past year.

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