Nervous Investors: 1 Canadian Growth Stock to Withstand Volatility

After the market recovery, it is increasingly difficult to find stocks trading at reasonable valuations. If you want to buy a Canadian technology stock today, a company like Open Text Corp. (TSX:OTEX)(NASDAQ:OTEX) is a good option.

| More on:
A person suffering

Image source: Getty Images

Are stocks still cheap? I’d argue that the answer is a resounding no. Aside from oil and financial companies, there are not a whole lot of stocks that can be labeled as cheap today. That doesn’t necessarily mean that there isn’t anything else to buy. 

One company worth investigating is Open Text (TSX:OTEX)(NASDAQ:OTEX). I haven’t yet re-entered a position, but I am considering buying into the company. It is a solid growth company with a great dividend. On top of that, Open Text is a software-based company that should be less impacted by the negative impacts of pandemic-based lockdowns.

A business that can withstand the lockdown

The pandemic sweeping the globe has exposed weaknesses with conventional business models and has opened the door to a new way of operating. A lockdown means that more people will become accustomed to working online out of their homes. I’m quite certain that there are a number of businesses considering a more permanent move to a decentralized system.

This company is positioned to profit from the transition to more digitized workspaces. It has a number of businesses that should be able to withstand the accelerated transition to a web-based society. Open Text’s cybersecurity business, bolstered by its purchase of Carbonite late last year, will be in high demand, as more and more companies conduct their operations, meetings, and transactions online.

Open Text also has a business network arm that should be in high demand, as companies transition their operations to online workspaces. It is likely to be the case that these transitions, already in progress before the pandemic, will be expedited by companies like Open Text. The trend could continue following the return to normal business operations.

A profitable company

The company’s Q2 2020 results were pretty impressive. One of the best numbers in my mind was that 73% of its revenues are now from recurring sources. Total revenues were up 4.9% year over year and recurring revenues were up even faster, up 6.5% over the same period a year earlier. 

In addition to excellent operational results, Open Text also pays a rather healthy dividend. The company currently pays out a dividend of US$1.01 on an annual basis, or a yield of 1.95% at the current share price.

The bottom line

Open Text operates in a growth area of the economy, cybersecurity, and the transition to digital workplaces. Online solutions were already a profitable business before the pandemic. The work-from-home era definitely got a shot in the arm from the lockdown. It is likely that the transition will continue in the future. 

I think that you could probably pick up Open Text today, since it is still trading well below its highs and will do well over the long term. It is not the fastest-growing company, and it does have a fair bit of debt for a technology company. Its growth is steady, though, and its dividend is solid. If you are looking for a Canadian tech company that will give you a steady income stream, this would be a good one to buy.

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.

Fool contributor Kris Knutson has no position in any of the stocks mentioned. The Motley Fool recommends Open Text and OPEN TEXT CORP.

More on Tech Stocks

Tech Stocks

Is Lightspeed (TSX:LSPD) Still a Buy After its Huge Q4 Loss?

The e-commerce investments in Canada have taken a turn for the worst, which is either a signal to stay away…

Read more »

Hand holding smart phone with online shop concept on screen
Tech Stocks

Forget Bitcoin: Shopify Is a Growth Stock That Could Correct Upwards

Shopify (TSX:SHOP)(NYSE:SHOP) stock looks to have a better risk/reward scenario than the likes of Bitcoin or any other cryptocurrency in…

Read more »

edit Business accounting concept, Business man using calculator with computer laptop, budget and loan paper in office.
Tech Stocks

1 IoT Solutions Provider Could Outperform BlackBerry (TSX:BB)

Technology stocks underperform in 2022, although one IoT solutions provider is a screaming buy compared to a former smartphone maker.

Read more »

Growing plant shoots on coins
Tech Stocks

2 Growth Stocks Available at Discounts: Should You Buy?

Canadian growth stocks in the tech sector are trading at considerable discounts from their pre-pandemic valuations, and these two might…

Read more »

TSX Today
Tech Stocks

TSX Today: What to Watch for in Stocks on Tuesday, May 24

Top bank earnings could keep the banking sector volatile on the TSX this week.

Read more »

Double exposure of a businessman and stairs - Business Success Concept
Tech Stocks

Is Now the Time to Buy Shopify (TSX:SHOP) and 1 More Beaten-Down Stock?

These tech companies have strong fundamentals and are well positioned to benefit from ongoing digital shift.

Read more »

exchange-traded funds
Tech Stocks

3 ETFs That Have Fallen Over 30% in 2022

ETFs don’t offer discounts comparable to individual stocks quite often, so when they do, it’s usually a good idea to…

Read more »

shopping online, e-commerce
Tech Stocks

Young Investors: Shopify (TSX:SHOP) Stock May Finally Be Worth Buying

Shopify (TSX:SHOP)(NYSE:SHOP) stock is attempting to stage a bottom, but should investors be buyers amid the market chaos?

Read more »