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Forget Shopify (TSX:SHOP): These 2 Tech Stocks Have Much More Potential

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Canadian investors interested in generating long-term wealth from Industry 4.0 and the Internet of Things (IoT) should purchase stock in electronic equipment supply and cloud computing services. Tax-Free Savings Accounts (TFSAs) and Registered Retirement Savings Plans (RRSPs) will see sizeable returns from these investments as soon as 2020.

According to the Toronto Stock Exchange, international trade data points to cloud computing and IoT innovation as the fastest-growing industry on the exchange. Security concerns over Huawei and Chinese government espionage through electronic equipment imports benefit Canadian cloud computing and electronic suppliers by reducing foreign competition in a growing industry with deep profit margins.

Evertz Technology (TSX:ET) is the most reliable IoT buy in Canada, proposing robust growth in both retained earnings and dividends. Investors keen on small-cap stocks and acquisition-led growth will appreciate TeraGo (TSX:TGO), as it has quickly emerged as a major player in data centre operations and 5G telecommunications.

Evertz Technology 

Evertz is a global technology company specializing in end-to-end broadcast equipment and cloud computing services. Evertz earns over 90% of its revenue from exports and stands to profit from the 5G rollout as Canada’s sole supplier of highly sensitive video and audio infrastructure solutions. Arguably the “Broadcom of Canada,” Evertz is in a unique position to profit from foreign supply chain security concerns.

Pre-tax profit currently stands at 18%, well above the attractive 3.91% dividend yield. In 2018, revenue grew faster than the cost of goods sold, boosting the company’s gross margin by 2.2%. Cutting-edge Canadian investors should purchase stock in Evertz now to capitalize on strong risk-adjusted returns in the Canadian technology sector.

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Niche tech communities recognize TeraGo as a strategic powerhouse in data centre operations and wireless services. TeraGo’s gross margin of 52.55% reflects noteworthy growth potential in Infrastructure as a Service (IaaS), the latest hot tech sector. IaaS is a cloud computing service for agile firms with exceptional data storage needs.

TeraGo’s 2015 acquisition of RackForce, Canada’s largest enterprise cloud service provider, fueled a 39% increase in cloud and colocation revenue in 2016. Since then, TeraGo has maintained a level of approximately $4.5 million of revenue and expects growth as Industry 4.0 and data innovations intensify the demand for IaaS.

More recently, in 2018, TeraGo acquired the most extensive 24 and 38 GHz fixed wireless spectrum in Canada under Antonio Ciciretto’s leadership as president and CEO. No doubt, this acquisition allowed TeraGo to initiate the Toronto 5G technical trial in partnership with large U.S. vRAN provider, PHAZR. Farooq Kahn, CEO of PHAZR, even released a statement endorsing TeraGo as Canada’s leader in 5G services: “TeraGo is in a great position to be among the first to introduce 5G services to the Canadian market.”

Export market opportunities in cloud computing

Given growing cybersecurity concerns, low-cost overseas technology services and manufacturing are no longer viable options for security-conscious organizations. As one of the most trusted trade partners to the United States and the European Union, Canada has an opportunity to profit from the newly designed supply gap in high-growth cloud computing, data storage, and electronics manufacturing.

By investing in Canadian IaaS and electronic manufacturing, strategic investors can position Canada as the number one trusted supplier of security sensitive equipment and data storage services in the world.

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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.

Tom Gardner owns shares of Shopify. The Motley Fool owns shares of Shopify and Shopify. Fool contributor Debra Ray has no position in the companies mentioned. Shopify is a recommendation of Stock Advisor Canada.

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