Better Buy: CGI Stock or Constellation Stock?

Not all tech stocks are bad, and Constellation stock (TSX:CSU) and CGI (TSX:GIB.A) prove that. But when it comes to these acquisition kings, which is better?

| More on:
stock data

Image source: Getty Images

Tech stocks haven’t had a great go of it this year. Needless to say, the market downturn and worsening economy have created a poor situation for the industry. But within this sector, there are two software companies that really don’t deserve the drop.

Constellation Software (TSX:CSU) and CGI (TSX:GIB.A) both saw shares drop during the year, and it looks to be only because of their relation to the tech sector. Both have a strong path to growth through buying up essential software companies on the cheap, and then reinvigorating them to create stellar income.

But when it comes to investing in CGI stock or Constellation stock, which is the better buy?

The case for Constellation stock

Constellation stock has been referred to as a “serial acquisition stock” by some analysts. This company has been growing through acquisitions for decades. And it’s clear why. Constellation has proven that it can create solid income, bringing shares solidly into the four-digit range, and never dwindling.

During today’s market downturn, analysts haven’t changed their opinions of Constellation stock. During its recent third-quarter earnings report, analysts stated that they believe the company will continue to outperform the rest of the sector.

They are reassured by Constellation’s clear path to profits through incredible diversification, high recurring revenue, and a strong balance sheet to boot. This could also mean there are more acquisitions in the near future with so much cash on hand.

Therefore, at these prices and with shares down 11% year to date, Constellation stock could be a solid buy. Though it’s not cheap, with shares trading at 68.4 times earnings, and at $2,082 per share as of writing.

The case for CGI stock

Then, there’s CGI stock, which is in a similar growth mode and has been around just as long. However, shares are far cheaper for this company. That being said, it hasn’t experienced the drop that we’ve seen with Constellation stock.

CGI stock also reported earnings this month, with fourth-quarter profit coming in at $362.4 million, an improvement from $345.9 million the year before. Revenue also climbed 13.9% year over year, beating out earnings estimates of analysts.

Despite the macro headwinds of inflation and interest rates, analysts believe that CGI stock has proven it can remain strong. Further, the company has enough cash on hand to create more merger and acquisition opportunities. It, therefore, remains a resilient stock in the volatile tech sector.

Plus, shares are actually up 2% year to date, providing investors with some protection in their portfolio. It also trades at a far more affordable 18.8 times earnings, and at just $128 per share.

Bottom line

While both of these tech stocks are strong choices for your portfolio, it looks like CGI stock has more growth coming in the more immediate future. This tech stock has proven that it can take whatever the market throws at it head-on, and so investors are not as skittish about it compared to Constellation stock. So between the two, today I’d have to say CGI stock is the winner.

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 Amy Legate-Wolfe has no position in any of the stocks mentioned. The Motley Fool recommends CGI GROUP INC CL A SV and Constellation Software. The Motley Fool has a disclosure policy.

More on Tech Stocks

Upwards momentum
Tech Stocks

The 1 Canadian Stock I Think Could Double in 3 Years

Here’s why this top Canadian stock has the potential to double in three years or sooner.

Read more »

Hand arranging wood block stacking as step stair with arrow up.
Tech Stocks

Why Open Text Stock Rose 11% Last Month

Not all tech stocks are performing poorly. In fact, Open Text stock (TSX:OTEX) continues to rise higher, though it's still…

Read more »

Businessman holding AI cloud
Tech Stocks

2 AI Stocks to Watch in February 2023

Those looking to invest in AI stocks can consider companies such as Nvidia and CrowdStrike Holdings right now.

Read more »

A worker uses a double monitor computer screen in an office.
Tech Stocks

Better Buy: Shopify Stock vs. Lightspeed Stock

Shopify (TSX:SHOP) stock and Lightspeed (TSX:LSPD) stock both had their time in the sun, but which will feel the heat…

Read more »

online shopping
Tech Stocks

Why Shopify Stock Skyrocketed Nearly 40% in January 2023

Here are some key factors that make SHOP stock worth buying right now, despite its 40% rally in January 2023.

Read more »

A shopper makes purchases from an online store.
Tech Stocks

Better Buy: Shopify Stock or Amazon?

Let's see which e-commerce stock is a better buy between Shopify and Amazon in 2023 and beyond.

Read more »

Businessman looking at a red arrow crashing through the floor
Tech Stocks

3 Growth Stocks Down Over 50% That Are Screaming Buys in January 2023

Given their healthy growth prospects and discounted stock prices, these three growth stocks could deliver superior returns over the next…

Read more »

New virtual money concept, Gold Bitcoins
Tech Stocks

These 2 Stocks Carry a Lot of Risk, But Their Upside is Huge

If you want windfall gains, you have to risk losing what you invest. These two stocks with disruptive technology could…

Read more »