Canadian tech stocks have been hurting of late. The higher the multiple, and the further out profits are, the worse the damage Mr. Market has dealt out. Indeed, things get scary when a stock in your portfolio does nothing but go down day after day. Though it feels hopeless, even reckless, to buy on such dips, I think that younger, longer-term thinkers have a lot to gain by going against the grain at a time when it hurts so much.
Now, you shouldn’t throw all of your liquidity reserves at any one opportunity. It’s hard to time the bottom, and by doing so, you could put your portfolio in harm’s way. If your portfolio is otherwise diversified, and you can afford to see shares of a tech titan fall by 20%, 30%, or even 50% from your purchase price, then it may make sense to go scavenging for bargains in the tech scene. If you relish even lower prices, Canada’s fallen tech darlings are more than worth a second look, as markets look to stabilize going into the late spring and summer months.
Consider Nuvei (TSX: NVEI)(NASDAQ: NVEI) and Constellation Software (TSX: CSU). The two top Canadian tech stocks look to have decent risk/reward scenarios for those Canadian investors who aren’t as heavy in tech as they’d like to be. So, from riskiest (and highest reward potential) to safest, please consider the following duo.
Nuvei
Starting off this list, we have the riskiest and hardest-hit tech stock play in Nuvei. The payments processor got slammed even before the tech stocks were pulled lower by surging rates of the 10-year note. Indeed, short-sellers took aim, and many investors took profits with the intention of asking questions later — a wise move, indeed!
At the worst, Nuvei shed nearly 70% of its value. Things have since turned around, and investors may be ready to leave the shorts behind. Remember, Shopify had shorts on its back many years ago, but that didn’t stop the firm from rising to the top of the TSX Index for a brief time.
In any case, I think Nuvei is a very intriguing fintech firm that’s underrated. Yes, it rose by too much, too fast back in early 2021. But the stock has sunk and looks to be a compelling value at around 13 times sales — not bad for the type of growth you’ll get. Do be warned, though, as further short reports could have a detrimental impact on the stock, opening up the possibility of retesting those ominous lows hit earlier last year.
Constellation Software
For those who don’t want to invest in the scariest corner of the tech scene, there’s a more mature play in Constellation Software. Constellation has grown by leaps and bounds over the years thanks to brilliant M&A moves within the small- and mid-cap Canadian software scene. Indeed, Constellation has a private-equity flavour to it. With a competent management team that knows how to spot gems in the software space and get in at a reasonable price, it’s not a mystery as to why CSU stock has been more resilient than the likes of a Nuvei.
Constellation has crushed the TSX Index for so long. And I think it’ll continue to do so over the next decade. While you won’t get Nuvei-like upside, you will get solid capital gains at a lower beta (0.78 at writing). The stock goes for 7.2 times sales, which is not bad considering the calibre of low-volatility earnings growth you’ll get from the name.
