There aren’t many promising tech plays on the TSX, but that’s fine. You don’t need an entire basket of wonderful tech stocks to realize the long-term capital appreciation that such stocks have to offer. All you need is one or two solid names that can offer you next-level returns over the long run.
There’s no need to “diworsify” your portfolio with a basket of tech stocks. It has been shown doing such can actually be a drag on long-term returns and, worst of all, waste your time. It’s far better to own one or two wonderful businesses than several mediocre businesses, especially if you’re a DIY investor who needs to keep up with a vast portfolio of stocks.
Shopify Inc. (TSX:SHOP)(NYSE:SHOP) and BlackBerry Ltd. (TSX:BB)(NASDAQ:BBRY) are two of Canada’s hottest tech stocks, both of which were commented on by the infamous short-seller Andrew Left of Citron Research. Mr. Left is a BlackBerry bull and Shopify bear, and his public viewpoints of both companies influenced both stocks to experience huge moves of opposite magnitudes.
Should you side with Andrew Left and add shares of BlackBerry to your growth portfolio? Or is Mr. Left’s short thesis not enough to scare you away from buying Shopify?
The case for Shopify
Shopify is an incredible e-commerce play that has more than tripled since its IPO just a few years ago. The company hasn’t clocked in a profit, but that didn’t stop investors from flocking to the stock. The general public was euphoric over the market opportunity and the company’s incredible subscriber growth momentum.
In a piece that was published before Andrew Left made his short video public, I pointed out many flaws with the general public’s overly bullish thesis of Shopify. Sure, the company was gaining subscribers at a quick rate, but what was the quality of these subscribers? I’d argued that a huge chunk of the company’s subscribers probably wouldn’t be around in the years ahead because smaller-sized businesses usually fail as time progresses.
To add more salt in the wound, Mr. Left pointed out that Shopify has been using mid-level marketing tactics to gain subscribers. You can “become a millionaire” by signing up with Shopify and you don’t even need a business to begin with. That means a huge chunk of Shopify’s subscriber base is actually low quality, unsustainable, and these subscribers will likely cancel their subscriptions sometime over the medium term.
I was skeptical of Shopify’s business model in the past, and Mr. Left’s short thesis confirms my prior concerns about the company.
The case for BlackBerry
BlackBerry has reinvented itself as a software developer with one of the more secure systems in the market. While no system can ever be “unhackable,” CEO John Chen believes that BlackBerry is head and shoulders above peers when it comes to cybersecurity, and that BlackBerry systems are much harder to hack than a similar product from a competitor.
Andrew Left is a huge fan of BlackBerry’s QNX operating system and thinks that BB stock could double within the next two years or so.
And the winner is…
I’m with Andrew Left on this one.
If you’re hungry for a tech stock, then BlackBerry is the hands-down winner today and on any dips that may happen going forward. The company has “game-changing” tech and a promising growth runway that will propel its shares much higher over the next few years.
Shopify, however, is absurdly overvalued with a price-to-sales multiple of 18.2. The company will also likely face severe near-term headwinds over as Andrew Left pushes the U.S. Federal Trade Commission to investigate potentially illegal business practices going on at the company.
Stay smart. Stay hungry. Stay Foolish.
