What’s up guys, it’s wiz.
Welcome back to the channel. If you are new, I am a Canadian investor. I cover a whole lot of information about investing in Canada and do research into our Canadian market. I dive into growth investing, dividend investing and Canadian small caps / penny stocks. Today, I will be going over 3 Canadian tech stocks that offer a lot of value. Many tech growers are often too expensive for most value investors, but as you probably know, the market, as a whole, has been trending downwards, which is of course a great time to get into interested picks at a discount for the long term. Taking advantage of the current value sale for tech companies is what I’ll be covering today with 3 Canadian stocks that have been tanking but remain filled with value potential in the upcoming year. For new investors, you need to join Wealthsimple Trade if you are looking to start investing and live in Canada. If you use my link in the description to join Wealthsimple, you get 2 free stocks worth up to 4500$ so do not miss out.
Tech stocks, especially the ones with decent growth histories, are usually too expensive for most value investors to touch. However, the sector doesn’t always remain bullish, and most sector-wide growth spurts are followed by matching (sometimes brutal) corrections. And that’s the perfect time to buy tech stocks at relatively better valuations. Unless you already have tons of exposure to tech and need to focus on stocks from other sectors, some of the bargains in tech stocks are creating an unbelievable opportunity. It’s not just well-known tech stocks either. Even lesser-known companies have been selling off significantly. If you’re a long-term investor with the patience to wait for these stocks to come back into favour, let’s get into the 3 Canadian value tech stocks.
Let’s start off with an electronics manufacturing company. In an era where most tech giants are software-related, people often forget that hardware companies like Celestica (ticker symbol CLS) are also part of the sector. This Toronto-based company has seen much better days, and, at its peak, the stock used to trade well above $100 per share. But it hasn’t even hit $20 per share since 2005. Celestica’s market presence and its expertise are still worth betting on. It offers end-to-end product lifecycle solutions to various industries, and the diversity of its client portfolio offers it unique growth potential and financial safety. Last week, Celestica came out with quarterly earnings of $0.39 per share, beating the consensus estimate of $0.35 per share. This quarterly report represents an earnings surprise of 11.4%. A quarter ago, it was expected that this electronics manufacturing services company would post earnings of $0.39 per share when it actually produced earnings of $0.44, delivering a surprise of 12.8%. Over the last four quarters, the company has surpassed earnings per share estimates four times, showing its growth trajectory to be positive in the long term. CLS posted revenues of $1.57 billion for the quarter ended March 2022, surpassing the estimate by 5.6%. This compares to year-ago revenues of $1.23 billion. The company has topped revenue estimates three times over the last four quarters. This is what Rob Mionis, the President and CEO of Celestica had to say about these results. “Our strong performance in the first quarter was a great start to the year. Although the macro environment presented a number of challenges, we continue to execute well on our key objectives while advancing our long term strategy. Based on our performance to-date and the assumption that the supply chain environment does not worsen, we are pleased to raise our full year 2022 revenue outlook to at least $6.5 billion, which, if achieved, would represent at least 15% year-over-year growth.” So from a valuation point of view, Celestica is currently one of the cheapest stocks in the tech sector. It’s also slightly discounted (16%). But it may go down further, and waiting for it to reach its maximum depth might offer the best chance of robust growth in the long term for this Canadian tech stock.
Second pick, we will be going over a real estate tech company. Real Matters (ticker symbol REAL) has been heavily discounted for a while now. It started slumping after the 2020 peak and, so far, has fallen by about 85% from that peak. But now, the stock is very attractively valued as well, and the price-to-earnings ratio is at 11 right now, which is downright cheap from a tech sector perspective. As a technology company in the real estate mortgage and insurance niche, it established a decently sized network of professionals. It has a presence in both Canada and the U.S., and with two markets, the potential for growth is quite substantial, but the company seems to have hit a block. If it starts turning things around, preferably with the next earnings report, the stock may finally enter a long-awaited bullish phase. If the stock is expected to go down further, the chances are that it may become oversold again, but it’s already discounted enough. The company may see more investor activity if the real estate market becomes overheated in the U.S. or its financials start standing out from the past performance. Great undervalued Canadian tech stock to do your research in.
Third and final pick is an information management solutions company. Open Text (ticker symbol OTEX) is one of the few dividend payers in the tech sector, and thanks to its sizable discount, it’s currently offering a decent enough yield (2.2%) to make the stock attractive from a dividend perspective. However, its primary focus is its capital-appreciation potential, which might become more enhanced if you buy at a discounted price and valuation. The stock is currently trading at a 26% discount from its all-time high peak, and the price-to-earnings ratio is at 21, which may not consider it an undervalued stock in most other sectors, but tech is an exception. The information management software company has demonstrated a track record of profitability. Its earnings only dropped in one year over the last 20 years. Its cash flow generation has also been very strong. In fact, it generates substantial free cash flow. Its trailing 12-month free cash flow was US$688 million, leading to a payout ratio of about 33%. Despite the current slump, the stock offers an impressive 10-year CAGR of 15%, and it’s more than capable of growing your capital 2.5 times in the next decade.
Hope you guys enjoyed these 3 Canadian value tech stocks. These are risk plays because of the market that is currently trending downwards, but if you are willing to hold some of these companies for a year or more, then over time I do believe they will have good returns beating a year over year growth of at least 10%. As always, do your own due diligence before buying into any of the companies I went over. Please watch my previous videos on Canadian stock recommendations and let me know of any Canadian stocks you want me to look into and give my opinion on. Let me know in the comments, since I really want to expand my knowledge in the Canadian market, and you also expand your own knowledge by asking questions. If you did enjoy this video, leaving a like really helps grow the channel! Thanks for watching, I’ll see you guys in the next video!