Just Released: The 5 Best Stocks to Buy in November 2022 [PREMIUM PICKS]

Premium content from Motley Fool Stock Advisor Canada “Best Buys Now” Pick #1: Enghouse Systems (TSX:ENGH) Enghouse Systems (TSX:ENGH) provides enterprise …

| More on:
four people hold happy emoji masks

Source: Getty Images

Premium content from Motley Fool Stock Advisor Canada

“Best Buys Now” Pick #1:

Enghouse Systems (TSX:ENGH)

Enghouse Systems (TSX:ENGH) provides enterprise software to a variety of industries, including contact centres, video communications and remote work specialists, and the public safety and transit markets.

It’s been one of the best-returning growth stocks to own over the last decade or so, because of its steady cash flow growth. But the share price has been in reverse over the last two years, as acquisitions have slowed to a trickle, and cash flow growth has, too.

I have three reasons why I think the tide is about turn and Enghouse will return to its market-beating ways:

Reason #1: There are more deals to get done.

Higher interest rates have brought valuations down among public tech companies and have done the same in the private market. During Enghouse’s last conference call, CEO Stephen Sadler commented that the acquisition pipeline is full, and valuations continue to get more attractive, as smaller software companies are finding it more difficult to raise cheap capital.

With $230 million in cash and no debt, Enghouse is in a great position to make deals. In truth, management would have liked to have done more deals all along, but valuations were outside of what they were willing to pay, and they’d rather wait than chase returns. So, we’ve seen just $42.1 million spent on acquiring companies over the last two years, which is well below the $146.5 million the company spent over the previous two years.

Reason #2: There’s a return to stronger growth in call centre management.

Management at Enghouse is agnostic when it comes to the cloud. If customers want it, and they can make similar returns, they’re happy to make a cloud offering available. In its call centre business, Enghouse was initially slow to embrace the cloud and lost customers because of it. However, with a cloud offering now up and running, customer retention has returned to normal, and by allowing its implementation partners to sell cloud and on-premises offerings Enghouse is differentiating itself from competitors who won’t work with partners on cloud implementations.

Reason #3: Enghouse has been buying its own stock, which is abnormal.

The last time Enghouse found itself in this position was during the Great Financial Crisis in 2008 and 2009. The repurchases didn’t last long then, and the company was back to making deals in 2010.

Of course, interest rates could tick higher from here, and that might make shares of Enghouse a little cheaper. But that would very likely mean more buybacks at more attractive prices and bring more acquisition targets into its price range, too. From this price, I like the odds of Enghouse shares returning to their market-beating ways and think it’s a great time to buy.

Nathan Parmelee owns shares of Enghouse. The Motley Fool owns shares of Enghouse.

“Best Buys Now” Pick #2:

Redacted

logo

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.

More on Investing

thinking
Dividend Stocks

Should You Buy BCE Stock for its 8.6% Dividend Yield?

Down over 20% from all-time highs, BCE stock offers you a tasty dividend yield in 2024. But is the TSX…

Read more »

grow dividends
Tech Stocks

Why Nuvei Stock Jumped 26% on Monday

Nuvei (TSX:NVEI) stock saw shares surge today as the company confirmed it's in talks to go private through a buyout.

Read more »

consider the options
Investing

Better Buy for the Dividend: Enbridge or Nutrien?

Enbridge (TSX:ENB) and Nutrien (TSX:ENB) are great dividend plays for new investors going into April.

Read more »

Gold bars
Stocks for Beginners

TSX Materials in March 2024: The Best Stock to Buy Right Now

Materials have been quite volatile, though the price of gold has surged to all-time highs. That makes this stock a…

Read more »

grow dividends
Dividend Stocks

How Long Would It Take to Turn $20,000 Into $100,000 With TSX Dividend Stocks?

Here's how high-quality TSX dividend stocks and the power of compound interest can help grow your investments by 400% or…

Read more »

Happy diverse people together in the park
Tech Stocks

A Once-in-a-Generation Investment Opportunity: Artificial Intelligence (AI) Growth Stocks

Canadian tech companies like Kinaxis (TSX:KXS) are doing big things in AI.

Read more »

Paper airplanes flying on blue sky with form of growing graph
Dividend Stocks

2 Soaring Stocks I’d Buy Now With No Hesitation

These two stocks may be the most expensive on the market, but they're high for a reason! And I'm still…

Read more »

Arrowings ascending on a chalkboard
Investing

This Canadian Blue Chip Is Trouncing TSX Returns, and It Still Has Room to Run

Alimentation Couche-Tard (TSX:ATD) stock looks quite frothy heading into earnings, but there may still be upside.

Read more »