After an extremely volatile period in 2022, several stocks have staged a recovery year to date. But a majority of companies are trading well below their record highs, making them attractive to value investors.
Typically, cheap stocks trading at a discount are well poised to deliver market-beating gains when investor sentiment improves. Here are two such dirt-cheap TSX tech stocks that are top buys in April 2023.
Calian Group stock
Valued at a market cap of $735 million, Calian Group (TSX: CGY), offers a diverse portfolio of solutions to companies part of verticals, such as healthcare, communications, learning, and cybersecurity.
Calian Group increased sales by 14% year over year to $148 million in fiscal the first quarter (Q1) of 2023 (ended in December). Despite an inflationary environment, it increased gross margins to 30.6% from 26% in the year-ago period.
With $46 million in new contract signings and a backlog of $102 million, Calian is on track to increase sales by 12% to $652 million in fiscal 2023. Comparatively, Bay Street forecasts adjusted earnings to rise by 6% to $4.11 per share this year.
Calian Group generated $12 million in operating cash flows in Q1, an increase of 24% year over year. Rising and improving cash flows also allow Calian to pursue highly accretive acquisitions or reinvest in organic growth.
With net cash of $58 million and available liquidity of $131 million, Calian Group is well capitalized. The TSX tech stock also pays investors annual dividends of $1.12 per share, translating to a forward yield of 1.8%. In the last 15 years, these payouts have risen by 5.8% annually.
Priced at 1.1 times forward sales and 16 times forward earnings, CGY stock is very cheap. Analysts expect CGY stock to surge close to 30% in the next 12 months. The tech stock has already returned 350% to shareholders in the past decade after adjusting for dividends.
Softchoice stock
Another dividend-paying cheap TSX stock is Softchoice (TSX: SFTC). An enterprise-facing company, Softchoice provides cloud and data centre solutions that include application modernization. Its suite of collaboration and digital workspace solutions comprises secure access and change management, while it also offers IT asset management and network security support solutions.
Softchoice has increased its customer base from 4,369 in 2017 to 4,758 in 2022. Its gross profit per customer has risen from $8,000 to $66,000 in this period due to higher engagement rates and increased spending.
SFTC stock went public in May 2021, and shares touched a record high later that year. Currently trading 55% below all-time highs, SFTC stock is priced at 0.8 times forward sales and 16.5 times forward earnings.
Its operating cash flow stood at $40 million, while free cash flow grew 21% year over year to $72 million, allowing the company to increase its quarterly dividends by $0.11 per share. This increase in profit margins allowed Softchoice to increase quarterly dividends by 23% to $0.11 per share, indicating a forward yield of 2.4%.
In the next five years, analysts expect Softchoice’s adjusted earnings to rise at an annual rate of 13.7%, allowing it to increase dividends further, given it ended 2022 with a payout ratio of just 35%.
