Sometimes, it’s best to forget about trying to uncover the perfect stock to buy and to look for a name that’s underpriced and out of favour on Bay Street. Undoubtedly, it’s hard to be buying on minor dips, let alone 56% meltdowns. That’s not just a valuation reset; it’s a vicious crash, and one that’s sure to scare away a lot of long-term investors and dip-buyers.
Indeed, nobody wants to be caught skating offside with a name caught on the wrong side of a disruptive trend. With AI and the so-called fourth industrial revolution causing investors to second-guess some software names on the way down, there seems to be a wide-open door for the deep-value crowd.
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Is this “software scare” an opportunity for dividend hunters?
Software has never really been considered all too cheap, at least until recently. Whether that’s attributed to the impressive margins, the excitement factor, or something else, software has been a corner of the market that’s typically commanded a premium. Now that it’s priced at a discount, though, should investors act? Or has something fundamentally changed?
In case you missed it, investors have been panic-selling anything touching software for the past couple of months over fears that AI will drive down the price of software towards zero. Indeed, could software titans face increased competition as AI tools make it easier for firms to build their own software platforms from scratch?
Most definitely. But software isn’t at a standstill. They’re in the AI game, too, and, in many cases, it’s these software companies that may already be a country mile ahead of the AI-equipped firms aiming to take away the lunch of the incumbents.
Thomson Reuters: A new AI-savvy dividend stock on the block
Enter shares of Thomson Reuters (TSX: TRI), a media and software firm, that’s taken a hit to the chin in the past year. I think the damage is overdone. And while the name isn’t known for having a huge yield (it’s typically in the ballpark of 1.2.–1.4% or so), the crash has caused the yield to swell above the 2.7% mark. If a revisitation of prior lows or a plunge below is in the cards as the relief rally runs out of steam, a 3% yield could arrive.
If it does, I think investors should be buyers of shares despite the scary chart. The stock might be so cheap that even management can’t resist buying shares. With a $600 million buyback in place, I do think Thomson Reuters is making the right move in a moment of industry-wide panic.
As a content-driven software firm with impressive AI offerings of its own, I’d much rather bet on Thomson Reuters’ pivot than bet against an AI-equipped firm that doesn’t have the same dataset or client relations. Whether it’s legal, accounting, or something else, Thomson Reuters still seems to be the horse to bet on, even if it is playing defence as agents rise. With Reuters also launching a foundation model, I think it’s about time to think of the firm as more of a firm that can win in AI.
So, is Reuters really that misunderstood? It’s hard to say, but let’s just say that fear is in the driver’s seat. And with that, there will be pricing mistakes in the market. Perhaps it’s a great bet once the firm can show more evidence that it can not only stand its ground but also use AI to power a wave of growth.
