Shares of Celestica (TSX:CLS) have been so incredibly hot this year, gaining more than 176% year to date. And while value investors may shy away from chasing such a name, I think that the firm’s spot in the artificial intelligence (AI) revolution could help it continue its ascent.
Of course, there are going to be more than a couple of bumps along the way, with shares more recently dipping just over 3% on Tuesday in what was a fairly turbulent session of trade for the TSX Index, which was off close to 2% in a day. Indeed, much of the Tuesday tumble was attributed to considerable weakness in the gold-mining stocks.
The latest stumble in the TSX could be an opportunity to buy the stocks that “work”
Either way, the latest TSX Index stumble, I think, should be viewed as just another dip to pick up shares of overheated names that might not be ready to roll over quite yet. Of course, shares of CLS are getting a bit hard to value now that they’re trading at 57.6 times trailing price to earnings (P/E).
While the growth prospects do warrant a big premium, the big question investors must ask themselves is how much of a premium should one pay for the AI beneficiary, as the so-called fourth industrial revolution looks to move into yet another year.
On a forward-looking basis, shares go for just shy of 38 times forward P/E, which is a much more reasonable figure, especially for one of Canada’s hottest new tech names.
If growth can stay in the high-double digits, perhaps due to continued strength in AI-driven demand, I’d be in no rush to sell the name at the first signs of pain. The AI trade still looks intact despite “bubble” concerns raised by some. Perhaps the biggest vote of confidence over the past week, I believe, is the initiation of coverage from one of the biggest banks on Wall Street.
Celestica gets a big upgrade
With Goldman Sachs starting CLS shares with a buy rating and a price target that still implies a good amount of upside from current levels (especially after the latest Tuesday dip), it might be an opportune time to think about adding to a position.
Though I’m never a fan of chasing, I think that nibbling into further weakness, preferably closer to $350 per share, could be a smart move for long-term investors who believe in the growth story. In short, Goldman analysts said they view the Canadian firm as a “winner amongst growing AI data centre build deployments” because of their “competitive advantage[s].” Indeed, that’s an encouraging statement, to say the least.
Either way, I think Goldman is right to stay upbeat on Celestica, even though much of the easy gains have already been made by earlier investors.
At the end of the day, the firm has a fairly wide economic moat that should protect its growth in the continued AI data centre boom. As deals in the AI scene become more circular, I think Celestica is a name that will continue to benefit as more firms look to up their spending on the latest and greatest AI tech and tools.
