Stash These 2 Tech Stocks in Your TFSA for the Long Term

Kinaxis Inc. (TSX:KXS) and Sierra Wireless, Inc. (TSX:SW)(NASDAQ:SWIR) are two top tech stocks that are benefiting from strong secular trends. They’d make excellent additions to investors’ TFSA portfolios.

Karen Thomas, MSc, CFA

Karen is a stock market enthusiast focused on uncovering those stocks that she believes the market has mispriced. She does this through fundamental and quantitative analysis of companies and their industries, as well as a study of future opportunities and trends. She holds a Masters degree in Finance, the CFA designation, and has over 20 years of experience in the investment management industry. Having worked at a major pension fund, as well as two leading mutual fund firms as an analyst and portfolio manager, she has solid investing expertise which she aims to share with her readers.

Published March 7, 2019 12:10 pm EST

Technology and therefore tech stocks are the future.

Strong secular growth trends are driving growth in the tech industry, as companies strive to do things better, faster, and cheaper, and to stay connected to different stakeholders and to continuous improvement.

With this in mind, TFSA investors should consider bulking up their holdings in the tech space, as this group has staying power as well as exciting growth ahead.

Here are two tech stocks that have strong long-term growth ahead.

Kinaxis (TSX: KXS), the $1.7-billion-market-capitalization tech company, has been a high flyer since its IPO in 2014, returning more than 400% for investors over this period.

The Ottawa-based developer of cloud-based supply-chain management solutions has gained market acceptance and market share, more than doubling its revenue since 2014 and achieving a compound annual growth rate in revenue of 22% over this period.

In the last year, Kinaxis stock is pretty much flat, despite continued double-digit revenue growth, continued free cash flow generation, and a strong balance sheet.

So, what happened to precipitate this free fall?

The last two quarters were disappointing, and Kinaxis stock has plummeted more than 20% since 2018 highs. It didn’t help that the stock was trading at almost 100 times this year’s earnings, but as a growth stock and in the context of a risk-taking market, these things are to be expected as investors bid up the stock price.

But now sentiment is decidedly shifting.

And this, along with results that were disappointing, has worked to bring the stock down to more reasonable levels.

So, valuations are better, albeit still high, at roughly 68 times this year’s expected EPS and 55 times next year’s consensus expected EPS.

Sierra Wireless (TSX: SW)(NASDAQ: SWIR) stock has been killed in the last couple of years, as slowing revenue growth, mounting net losses, and 2019 company guidance well below expectations took their toll.

On the downside, clearly, there is a problem with slowing organic growth at Sierra, as a slowdown in the automotive and mobile computing end markets has stung the company.

In the most recent quarter, total revenue increased 9.7%; last year, it fell 1% versus last quarter. Organic revenue growth was 4% versus 10% last quarter. Additionally, management issued guidance of no revenue growth in 2019.

For those of you who are looking to determine whether this a great long-term buy opportunity, let’s look at the company’s balance sheet.

Sierra has almost $60 million in cash on its balance sheet and no debt, leaving the company with plenty of wiggle room and flexibility with regard to future acquisitions and capital spending.

Sierra Wireless has spent countless quarters burning through its cash, but in 2018 the company is generating healthy amounts of free cash flow, which bodes well for everyone.

In 2018, Sierra generated almost $28 million in free cash flow.

The stock trades at 0.6 times sales and at book value.