The technology sector was hit hard by runaway inflation and aggressive interest rate hikes in 2022, which led to a massive sell-off. Fortunately, the market is recovering this year and investments in growth-oriented companies are returning.
Thus far, in 2023, technology is the top-performing sector with its 13.5%-plus year-to-date gain. No other primary sector has a positive gain of more than 10%. Energy, last year’s hottest sector, is in negative territory (-4.96%).
If you anticipate a colossal rebound in this high-growth sector, pay special attention to OpenText (TSX:OTEX) and Tecsys Inc. (TSX:TCS). They are the technology stocks of the future you can buy right now.
Solid organic growth
OpenText continues to deliver solid organic growth, notwithstanding strong market headwinds. The $13.2 billion information company provides market-leading information management solutions. At $48.95 per share, current investors are up 22.9% and enjoy a 2.7% dividend.
In Q2 fiscal 2023 (three quarters that ended December 31, 2022), annual recurring revenue (ARR) increased 3.6% to US$897 million versus Q2 fiscal 2022. Notably, net income soared 192.7% year over year to US$258.5 million. EVP and CFO, Madhu Ranganathan, said OpenText’s cash flow profile is strong and has tremendous momentum entering 2023.
Mark J. Barrenechea, OpenText’s CEO and CTO, said, “OpenText delivered a superb second quarter with strong cloud bookings and revenues, establishing our eighth consecutive quarter of cloud organic and ARR organic growth in constant currency.”
Furthermore, Barrenechea said, “Our business model is being designed to have a 20%-plus conversion rate from revenue to free cash flow.” He adds the company, through the OpenText Business System, focuses on growth, profits, and creating value. Management intends to invest in cybersecurity to gain market share and ensure it becomes a top driver of customer value from OpenText.
According to Ranganathan, the steady demand in large cloud deals is increasing the average minimum cloud contract value. The acquisition of Micro Focus signals an exciting new phase and places OpenText in a solid position of strength. Management said it has momentum and confidence in the total growth and integration plan.
Thriving business
Tecsys is a dividend-paying tech stock like OpenText. At $27.98 per share (+5.47% year to date), you can partake in the modest 1.03% dividend. Based on market analysts’ 12-month average price forecast of $45.43, the return potential is 62.3%.
The $407.7 million software-as-a-service (SaaS) company provides cloud-based supply chain management solutions. The business thrives despite a challenging environment, as evidenced by the Q3 fiscal 2023 results.
In the quarter that ended January 31, 2023, SaaS revenue and ARR rose 36% and 27% year over year to $9.5 million and $75.4 million, respectively. The quarter’s highlight was the 152% increase in SaaS subscription bookings to $5.8 million from a year ago. Its CFO, Mark Bentler, expects Tecsys to drive market expansion and investor value.
President and CEO of Tecsys, Peter Brereton, said, “We continue to see healthy pipeline activity that shows a growing demand for our value proposition to our base customers and the supply chain market as a whole. In light of these favourable market conditions, we continue to invest to drive organic growth.”
Rare gems
OpenText and Tecsys are rare gems because only a few tech stocks pay dividends. The future of these businesses also looks bright.
