The technology sector was the top performer in 2020, the first year of the global pandemic. In May of the same year, Shopify dethroned the Royal Bank of Canada as the country’s largest publicly-listed company. The e-commerce platform also ranked number one on the 2020 TSX30 List.
Canada’s primary stock market index shrugged off the lingering COVID-19 pandemic and posted multiple highs in 2021. Tech stocks went on a hiatus, while the energy sector made an incredible comeback to end the year as the best performer. As of January 24, 2022, technology is the worst performer (-15.66% year-to-date) among the 11 primary sectors.
Shopify (-31.76%) and other prominent names such as Lightspeed Commerce (-25.12%), Absolute Software (-18.97%), and Kinaxis (-12.15%) are in negative territory and trading at discounted prices. Due to geopolitical and inflation concerns, the sector could still retreat in the next few days.
Top tech companies
You don’t need to time the market to take a position in iShares Capped Information Tech ETF. XIT is the only pure-play Canadian tech ETF on the TSX. While current investors are down 15.97% year-to-date ($43.50 per share), the ETF has been a winning investment in recent years.
XIT’s total return in the last three and five years is 128.64% (31.67% CAGR) and 221.34% (26.26% CAGR). As of January 21, 2022, the net asset is $497.33 million, with 24 holdings. The top three holdings are Constellation Software (27.85%), Shopify (17.62%), and CGI Inc. (15.75%).
BlackRock’s investment objective for this ETF is to deliver long-term capital growth. XIT replicates the performance of the S&P/TSX Capped Information Technology Index, net of expenses. As an asset manager, BlackRock rebalances the portfolio every quarter. The fund’s exposure skews toward application software (54.07%), although 34.67% of total holdings are in internet services & infrastructure and IT consulting & other services.
Expanding global footprint
Dye & Durham trades at a discount (-20.37% year-to-date) but carries a ‘buy’ rating from market analysts. Their 12-month average price target is $64.40, or a potential 80.19% appreciation from the current share price of $35.74. The $2.45 billion cloud-based software and technology company caters to legal firms, financial service institutions, and government organizations.
Management’s immediate goal is to implement its ‘Build to a Billion’ strategy and achieve $1 billion of adjusted EBITDA. In December 2021, Dye & Durham entered an agreement to acquire Link Administration Holdings Limited, a technology-driven market leader in Australia.
CEO Matthew Proud, said, “This is a transformational acquisition for Dye & Durham and represents a major step forward in our ‘Build to a Billion’ strategy.” He adds the deal will enable Dye & Durham to expand its proven model into adjacent markets. Link Group will likewise diversify and strengthen the company’s position in its two key markets, Australia and the U.K.
Undervalued tech stocks
Industry analysts say many tech stocks have become undervalued due to the slump to start 2022. Companies with disruptive technology should be attractive to value, growth, and long-term investors.
