The search for the best stocks to buy is always on. For those looking at growth and value within the IT and tech sectors, this value-oriented search can be difficult. After all, the tech sector is one that isn’t known for its value stocks. Most investors focus on top-line growth over sustainable earnings and cash flow expansion over time.
The thing is, the Canadian IT sector has a number of companies that are worth considering. These stocks do tend to trade higher than market multiple valuations. However, from a cash flow growth perspective and a price-earnings-to-growth (PEG) ratio basis, they’re not expensive.
Here are the two top Canadian tech stocks I’ve got on my watch list right now.
Constellation Software
Constellation Software (TSX: CSU) is a Canadian tech giant that develops and customizes software for private and public-sector banks. The company has a speciality in building, acquiring, and managing vertical-specific businesses. It has two business segments: the private sector and the public sector.
Constellation Software debuted in 2006, and subsequently provided investors with nearly 20,000% returns over the past two decades. Few companies can offer these kinds of returns, which have been driven by a long-term growth-by-acquisition model that is really unparalleled in this space. Notably, this momentum has continued, with CSU stock surging roughly 10% since the beginning of the year.
The company’s market capitalization of $75 billion certainly puts this stock in the large-cap realm, as far as Canadian companies are concerned. The thing is, Constellation carries a beta of 0.8, meaning it’s a relatively defensive option within the high-growth tech sector. Additionally, Constellation’s revenue growth rate of nearly 26% year over year and its forward price-earnings multiple of 36 times suggest this stock is undervalued relative to its long-term growth prospects.
Open Text Corporation
Open Text Corporation (TSX: OTEX) is another Canadian tech giant that offers clients software to archive, aggregate, search, and retrieve unstructured information. The company specializes in delivering software solutions and services to government entities, consumers, and large- and small-scale businesses to manage their information.
Open Text has a global presence spanning regions of America, the Middle East, Europe and Africa. The company established its name in the market through its enterprise information management (EIM) software. Open Text Corporation recorded annual recurring revenue growth for 12 consecutive quarters. Its cloud bookings increased by 63% year over year to $236 million.
In addition, Open Text Corporation unveiled Cloud Editions 24.1 and technological advancements in OpenText Aviator™. This product facilitates multiple AI applications while ensuring knowledge-based governance, information management, and security. These technological advancements of Open Text will help it expand its business and operations and earn huge profits. In short, it will help you get higher dividends in your investment period.
For those looking for Canadian tech stocks with some AI upside, Open Text certainly looks like an intriguing option. At a forward price-earnings multiple of just 7 times and year-over-year revenue growth coming in above 70%, this tech stock is about as cheap as they come.
