Many Canadians head down south for their tech stocks. The NASDAQ is chock-full of promising up-and-coming names that could turn into multi-baggers over time. While it’s nice to inject your portfolio with some growth from a Silicon Valley darling, in today’s environment, I think it makes more sense to stick with domestic tech names to avoid getting dinged when exchanging your loonies for greenbacks.
Moreover, the valuations on many U.S. tech darlings are frothy, and seeing as U.S. stocks are usually under the spotlight of international investors, it’s not uncommon to see the “sexiest” of growth stocks (like those up in the cloud) run up well above their intrinsic values in bull markets. It’s marginally tougher to find opportunities in the space given the extraordinarily high trading volumes.
My goal is not to shoot down U.S. tech stocks. Instead, I’m trying to convince you to give Canadian tech darlings the respect they deserve. Many of them are under the radar and are capable of growth that’s comparable to Silicon Valley darlings and for a fraction of the price!
Without further ado, consider the following two Canadian tech titans:
Cloud stocks have been all the rage of late. And up here in Canada, Kinaxis is one of the best up-and-coming firms that’s been harnessing the cloud to create next-generation technologies.
For those unfamiliar with the name, Kinaxis is a provider of supply chain, sales, and operating software solutions. For those who understand the intricacies of the supply chain and day-to-day operations of a large enterprise, you’ll know how expensive it can be to keep things in order. That’s a major problem for many firms, and it’s an opportunity for Kinaxis to move in, provide value, and profit profoundly.
Kinaxis recently came off a fairly decent first quarter beat thanks to license renewals. The magnitude of renewals speaks wonders about the value of the services that Kinaxis provides to its clients.
In spite of the intense competition in the supply chain management space, the company has found a way to be invaluable for its clients. Although management is calling for in-line license renewals through 2021, I do think the bar is set low, and with large multinational deals expected to close over the next quarter, I view Kinaxis as one of the timeliest Canadian tech bets today.
Constellation Software (TSX:CSU)
Venture capitalism (VC) and private equity (PE) firms have been incredibly popular over the last several years. Both VC and PE are seen as alternative investments that enable long-term investors to achieve above-average results. Of course, not every investor has the ability to think truly long term, and without the right portfolio managers running the show, finding a significant multi-bagger with private firms is akin to finding a needle in a haystack.
Fortunately, with Constellation, you’re getting exceptional stewards who’ve been spotting value in the microcap tech universe for quite some time now. The firm looks for opportunities in the small-cap tech space, scooping up the ones that it deems show the most long-term promise.
Constellation has a track record of acquiring firms in the government sector for the higher degree of regulation and the stability of cash flows. Although Constellation invests in non-government-related firms as well, Constellation’s management team has a knack for scooping up firms that tilt the risk-reward trade-off in its favour.
The result? Outsized capital gains with a minimal degree of volatility. The stock has clocked in over 370% in gains over the past five years, and with no signs of slowing down, I think investors ought to buy the name before it garners more attention through the eyes of international investors.
Stay hungry. Stay Foolish.
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Fool contributor Joey Frenette has no position in any of the stocks mentioned. Kinaxis and Constellation Software are recommendations of Stock Advisor Canada.