The Best Tech Stock to Buy in 2019

With over $1.1 billion in free cash flow generation, CGI Group Inc. (TSX:GIB.A) (NYSE:GIB) is close to another game-changing acquisition and more capital gains for shareholders.

| More on:
new stock pick

While Canadian tech stocks may not be as big or well-known as their U.S. counterparts, many of them are, nonetheless, just as pertinent to the industry and just as important for investors.

Take CGI Group Inc. (TSX:GIB.A)(NYSE:GIB), an independent IT services and outsourcing provider with over $11 billion in revenue, for example.

It is the best Canadian tech stock out there right now, as I will illustrate in four clear points below.

Proven track record

Over the last six years, CGI has grown its free cash flow at a compound annual growth rate (CAGR) of 14%, which is a lot if we consider that free cash flow in 2013 was $530 million.

In 2018, free cash flow was more than $1.1 billion, which leaves the company well positioned to continue to pursue growth, organically and via acquisitions.

Acquisition imminent

Which leads us to the next point.

The company has spent $350 million in the last year on five smaller, tuck-in acquisitions and is still looking out for more.  A bigger acquisition is still on the table, as the company’s goal is still to double the size of the company within the next five to seven years.

And it appears that management may be close to making another transformational acquisition that will take the company to the next level, similar to the Logica acquisition back in 2009.

Strong execution

In the beginning, the Logica acquisition in 2009 raised hell at CGI because of its impact on margins and because of investors’ lack of confidence in the company’s integration abilities.

EBIT margins sank to below 9% after the transformative Logica acquisition, but as of today, they are higher than ever, at almost 15%.

This is important, as it speaks to the synergies that can be achieved with acquisitions and it speaks to the company’s know-how and expertise in doing so.

At a more micro level, over 90% of projects are within time and on budget, which is an exceptional track record and speaks to the high-quality, high-level company that CGI is.  These details ensure longevity, they ensure leadership positions, and they ensure strong futures.

No dividend but plenty of capital gains and free cash flow generation

So there is still no dividend at CGI, as the company is still in growth mode, but investors have been the beneficiaries of strong capital gains over the years, a 150% five-year return to be more precise.

And one day, as the company continues to grow and cash flow continues to pile up, dividends will be in the cards as well.

Final thoughts

I can sum it up by saying that CGI Group has been a steady, reliable company offering investors stability, consistency, and growth, and that these qualities mean that the company has a bright future ahead.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Karen Thomas owns shares of CGI GROUP INC CL A SV.

More on Tech Stocks

Businessman holding AI cloud
Tech Stocks

Could Investing $20,000 in Nvidia Make You a Millionaire?

Nvidia stock has made investors millionaires in the last 10 years. Is it too late to invest to become a…

Read more »

Business man on stock market financial trade indicator background.
Tech Stocks

1 Growth Stock Down 50 Percent to Buy Right Now

There are plenty of growth stocks in the market worth considering, but Shopify (TSX:SHOP) looks like one of the best…

Read more »

Woman has an idea
Tech Stocks

Prediction: 1 Stock That Could Trounce the Market 

The TSX has been favouring tech stocks, but not this one. However, it has the potential to trounce the market…

Read more »

clock time
Tech Stocks

Long-Term Investing: 3 Top Canadian Stocks You Can Buy for Under $20 a Share

These three under-$20 stocks offer excellent buying opportunities for long-term investors.

Read more »

Businessman holding AI cloud
Tech Stocks

AI Will Transform Everything: Investors, Be Early Adopters and Buy These 3 Stocks

Investors looking to invest in companies doing big things in AI should consider these three stocks for their portfolios.

Read more »

stock research, analyze data
Tech Stocks

Forget Shopify: These Unstoppable Stocks Are Better Buys Today 

Should you consider buying Shopify stock while rivals consider a buyout or should you go for stocks with a stronger…

Read more »

A colourful firework display
Tech Stocks

2 Potentially Explosive Stocks to Buy in March

These two growth stocks are destined for many more years of market-crushing returns.

Read more »

edit CRA taxes
Tech Stocks

TFSA Millionaires Are Learning They Can Still Be Taxed

If you day trade stocks like Shopify (TSX:SHOP) in a TFSA, you may be taxed.

Read more »