The global pandemic in 2020 was memorable for the TSX, particularly for growth investors. If not for Shopify and tech stocks, Canada’s primary stock market index would not have ended 2020 with a 2.2% positive return. The e-commerce platform delivered a substantial 184.8% overall gain for the year.
Shopify quickly became the TSX’s darling for its meteoric rise. In May 2020, it also became the country’s most valuable company, unseating the Royal Bank of Canada. But in a sudden twist post-pandemic, the stock plummeted. The Big Bank reclaimed the throne in 2021, and SHOP lost 74.8% in 2022.
Fast forward to 2024 and SHOP is down 24.5% year to date. Also, at $77.67 per share, the total return in 3 years is -47.2%. The rise to superstardom was phenomenal but fleeting. Today, the hype is on artificial intelligence (AI), not e-commerce anymore.
Next growth star
Celestica (TSX:CLS) is the top candidate if you’re looking for the next growth star in the North. The tech stock flew under the radar when Shopify was climbing in 2020. It rose from obscurity in 2023 following a 159.8% overall return. As of this writing, the share price is $80.73 per share, a year-to-date gain of 107%.
If you had invested $6,500 (222 shares) at year-end 2023, your money would be $17,835.04 in May 2024, But why Celestica? Unlike Shopify, the company never incurred losses beginning in 2020. Net income has been consistently increasing yearly in the last four years.
Celestica is cross-listed in the NYSE and is slowly getting attention from American investors for its growing earnings and market-beating returns. Those who missed out on NVIDIA can shift to the Canadian stock. The AI stock is too pricey after topping US$1,000 recently, while Celestica is cheaper with enormous price appreciation potential.
Engineering expertise
The $9.5 billion company provides supply chain solutions and products to clients in North America, Europe, and Asia. It caters to cloud-based firms, defence, and industrial companies, including original equipment manufacturers (OEMs). Celestica is known for its engineering expertise, notably from product and test development to assembly technology.
Celestica takes pride in its proprietary SpectrumPro software platform in aftermarket services and support. The customizable web-based platform is for real-time data collection and machine integration throughout the manufacturing and repair process.
The Advanced Technology Solutions (ATS) segment handles the aerospace, defence, industrial, health technology, and capital equipment markets. Its second reportable segment, Connectivity & Cloud Solutions (CCS), serves communications and enterprise (servers and storage) end markets.
In Q1 2024, revenue rose 20% year over year to US$2.2 billion, while net earnings jumped 312% to US$101.7 million compared to Q1 2023. The quarterly financial results were impressive, notwithstanding materials constraints that caused production delays. Management said this is a continuing risk in the mid-term, especially for high-demand components and materials.
AI player
NVIDIA dominates the AI scene, but Celestica is well-positioned to garner significant market share. The Canadian firm developed the Photonic Fabric, an optical interconnect platform for AI computing and memory infrastructure.
Besides the foundational technology to unleash AI advancements, the Photonic Fabric boasts sustainable and profitable business models. Celestica can match, or even better, NVIDIA’s returns.
