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Silicon Valley 2.0 Is Coming: Here’s Where the TSX Index Has the Edge

As Walt Disney puts the streaming industry firmly in its sights following its acquisition of large parts of Twentieth Century Fox Film Corp., and Pinterest readies itself for an appearance on the NYSE, a new wave of American tech investment is about to begin. Let’s see where the TSX index has the edge when it comes to investing in tech stocks.

Cineplex (TSX:CGX)

Looking for a home-grown entertainment stock? Cineplex might be for you, with its high dividend yield and strong market share. Cineplex has the edge when it comes to passive income, with a high dividend yield of 7.17%; however, its 1.8% expected annual growth in earnings is on the low end, and follows on from a moderate one-year past earnings growth of 8.9%.


Hot off its Oscars successes, Netflix is going to have to work hard to keep the attention of Hollywood, with everyone from Disney to Steven Spielberg himself lining up to take pot shots at the content streaming giant. Indeed, down 0.12% in the last five days at the time of writing, Netflix feels like it’s in limbo at the moment.

While year-on-year returns of 20% are moderately high, and its track record is solid with a one-year past earnings growth of 116.7% and five-year average growth of 46%, Netflix sits on a lot of debt, currently at 197.8% of net worth. Meanwhile, it’s highly overvalued with a P/E of 129.8 times earnings and P/B of 30.1 times book.


Then again, Canadian investors could ignore the entertainment angle and just focus on the tech side of things; a good example of a TSX index tech stock would be Open Text. Having shot up since the start of January, and with five-year returns of 95.3% that far outstrips the TSX index (though trailing the Canadian tech industry’s 155.6% for the same period), this is an attractive dividend-paying stock.

Open Text’s one-year past earnings growth of 37.9% outperforms the market and the industry as well as its own 12.1% five-year average. Valuation is a little warm, but nowhere near the bloat on display over on the NYSE, with a P/E of 38.4 times earnings and P/B of 2.6 times book looking moderate by comparison. Again, passive income is the decider here, with Open Text paying a yield of 1.62%, matched with a 30.3% expected annual growth in earnings.

Open Text insiders have only shed shares in the company over the last few months, with some pretty solid inside selling over the past year as a whole. Cineplex has the edge here on dividends and on valuation, though it doesn’t have the same momentum as Netflix, with the latter’s 30.2% expected annual growth in earnings offering the growth investor something to get excited about.

The bottom line

While the casual tech observer may want to dismiss the likes of Pinterest as a hybrid tech outsider, content streaming is going to be big business, with everyone from to Apple jostling for the biggest market share. Though no precise analogues to the FAANGs exists on the TSX index, certain stocks may offer similar upside, though it may take some digging (including in unconnected sectors) to find them.

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John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Fool contributor Victoria Hetherington has no position in any of the stocks mentioned. David Gardner owns shares of Amazon, Apple, Netflix, and Walt Disney. Tom Gardner owns shares of Netflix. The Motley Fool owns shares of Amazon, Apple, Netflix, and Walt Disney and has the following options: short January 2020 $155 calls on Apple and long January 2020 $150 calls on Apple. Open Text and Walt Disney are recommendations of Stock Advisor Canada.

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