The Motley Fool

Why You Should Invest in These 2 Canadian Tech Stocks

Although the popular Shopify stock surged this year on the Toronto Stock Exchange (TSX), Tax-Free Savings Account (TFSA) investors should look at these two technology stocks instead.

Kinaxis (TSX:KXS) and Open Text (TSX:OTEX)(NASDAQ:OTEX) are in industries with higher growth expectations, larger profit margins, and much less competition. Both companies provide cloud-based enterprise data analytics software. Cloud-based software, data analytics, and artificial intelligence capabilities are the next big technology revolution.

Both these companies are much better options than the more expensive Shopify. Between Open Text and Kinaxis, Open Text is more than likely the better choice for TFSA investors hoping to profit from both capital gains and high dividend yields.

Not only is Open Text the less expensive option, but it also offers a dividend yield of 1.69% annually.

Open Text free cash flow higher than Shopify

Open Text is more profitable than both Shopify and Kinaxis, and yet shares in this stock sell for much less at $52.86 per share. At $772.34 million per year, Open Text’s levered free cash flow (FCF) is much higher than both Shopify and Kinaxis. To compare, Shopify’s FCF is a mere $18.21 million, while Kinaxis only pulls in $28.27 million.

Kinaxis and Shopify are both overvalued. Shopify stock currently sells for almost $367 per share, and Kinaxis shares cost nearly $79. Shopify doesn’t even pull in positive annual earnings per share (EPS). Last year, Shopify’s EPS came in at around negative $0.71.

Kinaxis EPS can almost compete with Open Text, but not really. For 2018, Kinaxis reported annual earnings per share of positive $0.62. As Kinaxis isn’t as expensive as Shopify, Kinaxis is still an excellent investment opportunity – just not as good as Open Text.

Kinaxis serves the profitable aerospace and defense industry

There’s a lot of money to be made from the government – and Kinaxis understands how to sell to government clients. This means that Kinaxis is not your typical software company. It offers a platform along with a business development strategy with the potential to triple its earnings over the next five years.

Kinaxis software is designed to manage global supply chain operations throughout the United States, Europe, Asia, and Canada. Post-Huawei scandal and the increase in cyber warfare between world governments put supply chain security in increased focus.

Supply chain threats, particularly in technology, automobile, and aerospace, are a top priority for Western countries particularly our neighbour to the south. U.S. president Donald Trump’s trade war with China and accusations of espionage through global corporations opens the door for Canada to position itself as the trusted cloud-based software solutions provider.

Foolish takeaway

Open Text shares a similar business model as that of Kinaxis, and boasts partnerships with some of the world’s top technology and consulting firms. These corporations include SAP SE, Microsoft, Oracle,, Accenture, and Deloitte Consulting. Because Open Text issues dividends to shareholders, Open Text is the best TSX investment a TFSA investor can make in a technology corporation.

That’s not to say that Kinaxis shares aren’t worth their weight, however. They certainly are – and in the next couple of years, Kinaxis is also likely to offer a healthy dividend yield like Open Text. For Canadian savers with extra money to invest, Kinaxis is an excellent Canadian technology investment to make today.

Just Released! 5 Stocks Under $49 (FREE REPORT)

Motley Fool Canada's market-beating team has just released a brand-new FREE report revealing 5 "dirt cheap" stocks that you can buy today for under $49 a share.
Our team thinks these 5 stocks are critically undervalued, but more importantly, could potentially make Canadian investors who act quickly a fortune.
Don't miss out! Simply click the link below to grab your free copy and discover all 5 of these stocks now.

Claim your FREE 5-stock report now!

Fool contributor Debra Ray has no position in any of the stocks mentioned. Tom Gardner owns shares of Shopify. The Motley Fool owns shares of Shopify and Shopify. Shopify and Kinaxis are recommendations of Stock Advisor Canada.

Two New Stock Picks Every Month!

Not to alarm you, but you’re about to miss an important event.

Iain Butler and the Stock Advisor Canada team only publish their new “buy alerts” twice a month, and only to an exclusively small group.

This is your chance to get in early on what could prove to be very special investment advice.

Enter your email address below to get started now, and join the other thousands of Canadians who have already signed up for their chance to get the market-beating advice from Stock Advisor Canada.

I consent to receiving information from The Motley Fool via email, direct mail, and occasional special offer phone calls. I understand I can unsubscribe from these updates at any time. Please read the Privacy Statement and Terms of Service for more information.