Much ado is made of the so-called “Magnificent 7” tech growth stocks in the U.S. Indeed, Canadian investors who have put at least some of their eggs into this basket have largely outperformed over the past decade, and that’s a trend many expect to continue.
That said, it’s also true that valuations are starting to get a bit frothy right now. Other markets, such as the TSX, can be an excellent opportunity for those looking to source truly undervalued stocks, at least relative to their higher-priced U.S. counterparts.
Here are three Canadian stocks I’d put in the “magnificent” bucket that I think are worth adding right now.
Source: Getty Images
Constellation Software
As far as Canadian growth stocks are concerned, Constellation Software (TSX: CSU) continues to be one of my top picks and for good reason.
As the chart above shows, this Canadian tech giant has (quietly) been on a tear for many years. Of course, investors who have stuck with this stock (and added to their positions over time) have done incredibly well. But for those who haven’t yet built a position in this growth-by-acquisition name, the question is whether there’s still time to do so.
I think that’s the case. This is a company that has the long-term growth tailwinds to continue to move forward on its current trajectory. That’s simply due to how fragmented the existing tech/IT market remains and how good of a job Constellation Software has done in consolidating this space.
Open Text
Another top software company I continue to tout as an excellent long-term growth play is Open Text (TSX: OTEX).
What I like most about Open Text is the company’s SaaS business model which continues to drive solid cash flow, which should lead to a more robust multiple than where the stock trades today. Now, it’s also true that Open Text did report a 13% year-over-year revenue decline this past quarter, with earnings also declining. However, the company’s management team has continued to repurchase shares, signaling strength ahead for investors willing to buy in at current levels.
In my view, management teams should be looking to buyback shares when they’re cheap. This is a company that’s now trading sub-12-times earnings and does have meaningful growth upside ahead. Say no more.
Kinaxis
Last, but certainly not least on this list of Magnificent Canadian stocks to buy, is Kinaxis (TSX: KXS).
I like this company not only because of its core supply chain-focused software suite and its embedded and loyal customer base. Rather, I think Kinaxis is one of the sneakiest (and most attractive) AI plays Canada has to offer. As such, I think the company’s recent multiple expansion is warranted.
Now, unlike Open Text, Kinaxis isn’t cheap. This is a stock that’s trading above 8 times sales at the time of writing, which indicates to me that most market participants think the party will continue for some time.
If you’re in the camp that believes Kinaxis can post multiple sequential quarters of big beats, this valuation makes sense and is worth buying here. I’m in that camp.
