It’s no secret that artificial intelligence (AI) is the massive elephant in the room, sitting amongst a slew of traders day in and day out. It can make many of us feel that we’ve missed the boat when it comes to AI stocks. However, there can still be a method of finding hidden AI stock gems in the madness.
While some companies are shouting loudly, the most “pick-me” of the bunch, others are quietly building, powering, or enabling the systems behind them. Looking beyond pure AI, focusing on data control, following the infrastructure trail or checking partnerships are great ways to find these gems. Today, we’re going to look at two AI stocks to consider.
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ENGH
First, we have Enghouse Systems (TSX:ENGH), an enterprise software and services company operating through Interactive Management Group (IMG) for customer interaction and asset management for operational support systems. These use AI, analytics and automation to bring businesses together.
The AI stock has expanded both organically and through acquisitions, with third-quarter results proving its strength. Many of its results missed analyst estimates, leading to a stock drop. That being said, it remains a top choice for a number of reasons.
The AI stock maintains low debt and a strong balance sheet, and even declared a $0.30 quarterly dividend. Furthermore, analysts see modest growth in the future. That’s especially thanks to its recurring revenue and software as a service (SaaS) base. With a solid acquisition pipeline, organic growth, and a dividend yield as a buffer, it’s an AI stock that could be a hidden gem waiting to sparkle.
CMG
Next, we have Computer Modelling Group (TSX:CMG), a software and services company focusing primarily on oil and gas, especially reservoir simulation. This specificity makes it a niche play, embedding AI and analysts inside the energy industry. Yet again, we have an AI stock investors might be missing thanks to recent earnings.
The company’s first quarter results saw total revenue drop by 3% year over year, though recurring revenue increased by 7%. Furthermore, free cash flow (FCF) fell by 22%, with market uncertainty impacting the business. Yet the company’s domain moat and specialization are something that cannot be ignored. Switching costs are high, so while the AI stock needs to work for new business, once businesses get on board, switching costs are high, making the stock quite sticky.
What’s more, it’s cheap! The AI stock trades at just 24 times earnings, quite inexpensive compared to other AI stocks. Furthermore, it holds a nice little 0.63% dividend yield as of writing. Not much, but still something many other AI stocks don’t even offer. And with a 0.08 beta, it’s a conservative way to get into the AI sector.
Bottom line
Not all AI stocks are risky investments. In fact, these two are downright conservative. Plus, each is coming off earnings that led to a drop that makes them valuable at these levels. So, if you’re looking for some hidden gems ready to shine, consider these on the TSX today.
