Tech stocks proved to be a truly heroic segment of the TSX last month. But what made some of the best Canadian tech companies such impressive performers on the markets? As Bill Ackman tactfully put it, “It’s the virus, stupid.”
Investors sought out names that responded the best to the extraordinary conditions caused by the pandemic. Among the strongest themes were e-commerce and business automation.
Business automation is an emergent theme
Constellation Software (TSX:CSU) and its subsidiaries command a virtual empire of software solutions that extends beyond North America to the U.K., Europe, and beyond. This is the top name on the TSX to buy for exposure to the custom software sector.
The fundamentals don’t look good, with a P/E of 73 times earnings several times the sector average of 14.6 and bloated P/B of 33 times book.
However, momentum is strong, with this name up 14% since February. Business automation and efficiency are become all-important, and Constellation Software delivers. Dividend yields are not normally part of the landscape when investors shop for tech stock. That said, Constellation Software pays a nominal 0.36% dividend.
Investors should buy Constellation Software for long-term upside. This name that has seen 34% year-on-year share price appreciation, proving that it can deliver on this front. This stock is also a powerful play for variety in a portfolio.
Just one stock adds reduced-exposure access to such diverse sectors as finance, communications, apparel, and the hospitalities. Operations are correspondingly diverse, spread across the Americas, Oceania, Africa, and Europe.
Kinaxis is another name in the automated business space. The markets have sought out businesses that help other business survive during these uncertain times. Kinaxis has been rewarded accordingly, with its supply chain-focused business performing exceptionally well on the TSX. This name is up 53% since February, with 121% share price appreciation over the last 12 months.
E-commerce and cybersecurity stocks are hot
The name of Shopify has been shouted from just about every rooftop by now. Its strong mid-pandemic performance underlined by a very welcome earnings beat make this e-commerce stock a breakout buy.
While the valuation could be better, that’s not why investors buy tech stocks. Investors should look instead at the potential for Shopify to defy gravity over the long term.
BlackBerry is a buy not only for the interconnectivity angle, but also for access to growth in the field of cybersecurity. Cylance is BlackBerry’s AI-powered cybersecurity subsidiary, and its inclusion in a portfolio is a canny play on near-future growth trends.
However, tech stocks such as BlackBerry also make rewarding additions to a Tax-Free Savings Account (TFSA) by adding strong capital gains potential.
TFSA investors should consider in particular the steep long-term capital appreciation potential in outperforming names like Shopify and Kinaxis. These true TSX tech success stories look more than capable of going the distance for years of wealth creation. E-commerce and business automation have emerged as major investment themes.
These two names exemplify these trends and can also help bolster the near-term growth section of a stock portfolio.
Tech stocks aren’t known for their affordability. But there are a some names on the TSX that match value with strong, long-term potential. We’ve rounded up a few of them for you...
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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.
Fool contributor Victoria Hetherington has no position in any of the stocks mentioned. Tom Gardner owns shares of Shopify. The Motley Fool owns shares of and recommends Constellation Software, Shopify, and Shopify. The Motley Fool recommends BlackBerry, BlackBerry, and KINAXIS INC.