There are some pretty great software stocks trading right here on the TSX Index. As the broader market rally looks to extend into the new year, I’d look for Canada’s software plays to get in on the action. Many of them may be fairly valued after a solid past few quarters of trading. Still, I think they represent a terrific value for investors seeking growth at a reasonable price.
Without further ado, let’s look at three domestic software stocks that I’d bet will finish next year higher, perhaps much higher, as the bull market looks to kick into high gear after more than a year of rocky trading.
Constellation Software
First, we have Constellation Software (TSX: CSU), a software giant that’s created value via prudent mergers and acquisitions over the years.
The stock is the epitome of a smart beta play, with less-choppy moves than the broader TSX Index (0.83 beta, which entails somewhat less market correlation), strong long-term momentum (shares have soared more than 250% in the last five years!), stellar management, and rock-solid fundamentals. As others go on about the so-called Magnificent Seven stocks, which have gotten a whole lot pricier in recent months, I’d look to Canadian software gems in Canada, just like Constellation.
Though the stock’s near a new all-time high at above $3,200 per share, I still find the company doesn’t get as much coverage as it deserves. Is it the number-one artificial intelligence (AI) frontrunner?
Perhaps not, but the company has a unique (and proven) formula to grow, and it’s not about to pull the brakes, even as macro headwinds and high rates weigh down most other growth-centric firms.
Docebo
Docebo (TSX: DCBO) is a lockdown-era darling that rocketed higher, as people began to work from home (WFH). Now that the calls to return to offices are growing louder, the WFH beneficiaries seem to be in a bit of a slump. Though Docebo AI-leveraging learning management software (LMS) makes it easier to train remote employees, I still think it has a place in hybrid workforces.
Indeed, people want more folks to return to offices, but many employees still want a few days to work from home. The hybrid model works favourably for a firm like Docebo, which still has massive room for growth from here. Sure, the pandemic tailwind is gone, but the firm still has a promising software product that can win over new clients over time as the firm introduces new advancements impossible to ignore. Of course, I speak of AI and its ability to make Docebo’s platform even better.
Docebo’s a stealth AI play and one that could have more upside in 2024 than the Magnificent Seven heavyweights.
Shopify
No top Canadian software stock list would be complete without e-commerce titan Shopify (TSX: SHOP), which is hovering right below $100 per share after its incredible Black Friday and Cyber Monday.
Though Shopify stock was blasted for its “untenable valuation” by an analyst named Clarke Jeffries, I still think the high price of admission isn’t as lofty as it seems when you consider the potential for central banks to have more flexibility with rates. Sure, there’s more hype baked into Shopify after a hot year. However, I believe Shopify’s growth story is more than just about the macro.
The company has impressive tech that can win market share away from rivals. The total addressable market is still quite sizeable, and if Shopify can keep delighting, I see more room for the stock to gain over the next five years. Could a correction be thrown in between now and 2024’s end? Sure, but any such dips ought to be viewed as chances to buy more. In the meantime, I wouldn’t bet against the company as it roars higher, even if shares are the “priciest” they’ve been this year.
