The return on U.S. equities have dwarfed those of the TSX Index over the past handful of years, and this can be attributed to the lack of Canadian tech stocks available. The S&P 500 has a five-year compound annual growth rate (CAGR) of 9.08%. The TSX Composite Index? It posted a 3.79% return of the same period.
There are two reasons for this. First off, Canada’s major Index is dominated by Financials, Energy and Materials. Combined, these three sectors make up over 65% of the Index. All three of these sectors have struggled and have weighed on the performance of the Index.
The second, is that most of the high-flying growth stocks are concentrated in the Information Technology sector. This makes them extremely attractive to new investors looking to learn how to buy stocks and make money in the markets.
Over the past five years, the S&P 500 and the TSX Technology Indexes have a CAGR of approximately 20%. Tech companies, especially in Canada, are booming right now. Which is exactly why we decided to come out with this list of the top technology companies in Canada.
If you’re looking to grab the best of the best, check out our list of Canadian ETF index funds, which includes the top technology fund.
Tech stocks just aren’t as prevalent on the TSX
The IT sector accounts for almost a quarter of the S&P 500. Recently, the major indices underwent a sector reshuffle, however technology still accounts 21.64% of the Index. for At 25.76%, it is almost double that of the second largest sector. In Canada, the technology sector accounts for only 5.2% of the TSX Index. Although it doesn’t seem like much, it is a 130 basis point increase from where it was last year. This ranks the sector 6th out of a possible 11, up from 9th last year.
As you can see, the lack of Tech-listed companies on the TSX has hampered the overall performance of the Canadian markets. The good news? The lack of performance can lead to a lack of awareness. Thus, comes opportunity.
Even though the TSX’s IT sector is small, there are plenty of good investments. The U.S. has its FAANG (Facebook, Amazon, Apple, Netflix, Google) stocks, but did you know Canada has its own acronym of tech all-stars?
Ryan Modesto, chief executive of 5i Research, coined the acronym “DOCKS” to reference Canada’s own FAANG stocks. The five stocks include Descartes Systems, Open Text, Constellation Software, Kinaxis and Shopify.
The DOCKS feature prominently on our list of Top 11 Tech Stocks. Combined, an equal-weighted position in each of these stocks would have returned almost 230% over the past three years.
Canadian tech stocks have outperformed the TSX by a wide margin
The TSX Technology Index has outperformed the TSX by a three to one margin over the past 5 and 10 years. In 2018, the TSX has rost 11% of its value, whereas the TSX Technology Index returned gains of 11%. Last year, the tech industry still trounced the TSX Index despite the best year on record since 2009. Tech stocks returned 60.24% versus the 19.13% return posted by the TSX. The best part is? You can still get Canadian techcompanies cheap today.
A well-balanced portfolio should have exposure to the IT sector and you don’t have to go south of the border with US tech stocks to find it. With that in mind, here are the top 11 tech stocks to buy today.
If you like these stocks, make sure to check out our other top stocks lists.
Top Oil Stocks
The Top Oil And Gas ETFS
Top Canadian Dividend Stocks
Best Stocks To Buy In Canada For Growth
Best Canadian Bank Stocks
Top Canadian Marijuana Stocks
Best Canadian Gold Stocks
Top Canadian Lithium Stocks
**All metrics updated as of Apr 24th 2020**
12) Absolute Software
Absolute Software (TSX:ABT) is a new addition to the list of the top Canadian technology stocks. Its inclusion is for one reason only – recent performance and future expectations.
Historically, Absolute has been a dud. Through the end of 2019, the company’s stock price was essentially flat over the previous five-years. Not what you expect to see out of a software company.
In 2020 however, it has been a different story. The company is making waves and is up 43% thus far. It is now thriving in our new reality. As the worlds shifts to working at home, companies have been struggling to manage cybersecurity risks. As a leading IT security firm that provides end-to-end solutions, it is well positioned to benefit.
Analysts expect robust average annual earnings and revenue growth of 17% and 10% respectively over the next two years. The question is, can it deliver? It has struggled in the past.
That being said, recent performance is encouraging. It has now beat earnings expectations in the last four quarters and may finally be ready to take that next step. At the very least, it may be worth adding Absolute to your watchlist.
11) Tucows Inc.
Tucows (TSX:TC) is still hanging on as on of our top tech stocks. It brought up the rear when we released our updated list earlier this year, and it comes in near the bottom again this time around. The company has performed quite well during COVID-19 and is essentially flat on the year. At the peak of the drop in March, it only lost about 26% – far better than most.
Tucows has been around for 25 years as has reinvented itself numerous times. Today, it is mostly known as an internet domain name registrar and for its disruptive Ting mobile and internet services.
Last year, the company stumbled, but it has a history of outperformance. Until last year, it had consistently outperformed the TSX Index. Over the past five years, Tucows stock has returned 172% and is once again outperforming the TSX in 2020.
Tucows is banking on Ting mobile and internet to drive growth. Although the expectation is for negative earnings growth of 10% in 2020, expect it to rebound in a big way in 2020. Analysts are targeting 43% earnings growth next year. In the meantime, the company’s domain registration business will continue to provide stable cash flows as it builds out Ting infrastructure.
Mkt Cap: $863.64 Million
YTD Gains: +3%
Fwd P/E: N/A
1Yr Price Target: $90
10) Lightspeed POS Inc
Canada has had quite a few dominant tech IPOs over the past few years. Will Lightspeed (TSX:LSPD) turn out to be another home run? It certainly appears that way. The company made its debut on the TSX at $18.80 per share back in March of last year. By the end of year, the company was trading at $36.07 per share, almost double its IPO price.
The company specializes in point of sale (POS) cloud solutions for small businesses such as restaurants. It operates in a fragmented industry with many local players and exponential room for growth.
Unfortunately, COVID-19 put a damper on the company’s expansion plans. Economic shutdowns have been particularly hard on the company’s target market – small to midsized businesses (SMB).
In fact, its share price lost more than 60% when the market crashed. The good news, the impacts were overblown. The company posted strong quarterly results that sent its share price soaring by 38% the day of earnings.
Lightspeed has one of the highest expected growth rates in the industry. Analysts expect the company to grow earnings by an average of 40% over the next couple of years. This is buoyed by the fact it has been aggressively pursuing growth through acquisitions.
Since it went public, it has made four acquisitions. Perhaps, none more important that the $164 million deal to acquire German-based Gastrolinx. The acquisition is the largest in company history and is expected to increase its customer base by 14%.
Lightspeed has plenty of cash, no debt and an undrawn credit line. It is well positioned to soar once COVID-19 measures subside.
Mkt Cap: $3.118 Billion
YTD Gains: -9%
Fwd P/E: N/A
1Yr Price Target: $38.33
9) CGI Group Inc.
Number 9 on our list of the best growing tech stocks is CGI. The CGI Group (TSX:GIB.A).
CGI Group has been a main stay on our list of Canadian tech stocks and also featured as a top pick in 2018 and 2019. It manages information technology (IT) services, as well as business process services (BPS).
Unfortunately, the company’s position on our list has dropped considerably. It is not proving to be as defensive as most of the other tech stocks on the list. Year to date, it has lost 18% of its value – far underperforming its peers.
The Company’s services include the management of IT and outsourcing, systems integration and consulting, as well as the sale of software solutions. In 2016, the company put forth aggressive growth targets. It wanted to double in size over the next five to seven years.
Historically, the company has proven adept at meeting its growth targets. At the center of the company’s growth is CGI’s build and buy strategy. This involves organic growth through renewed and expanded contracts with existing customers and making strategic acquisitions.
The company is a couple of years removed from the largest acquisition in its history. Now that debt levels are back to historical norms, CGI is on the lookout for another transformative acquisition.
It will need to do something soon as mid, single-digit growth isn’t going to help it reach its targeted goals. This is the main reason for CGI’s drop in position.
Mkt Cap: $22.75 Billion
YTD Gains: -19.7%
Fwd P/E: 16.79
1Yr Price Target: $107.83
8) Ceridian HCM Holding Inc.
Despite being well positioned to take advantage of the shift to working from home, Ceridian’s (TSX:CDAY) stock price has been content to muddle along during this pandemic. Up by 2% year to date, it is underperforming the tech industry, but is still crushing the TSX which as lost 12% thus far.
Ceridian is one of the newest members of the TSX. It recently raised approximately $600 million in one of the biggest IPOs in Canadian history. Ceridian first began trading on the TSX on April 25, 2018.
The company is a niche play in the human resources (HR) industry. It is one of the most respected global HR software companies. Its flagship Dayforce product, a cloud HCM platform is in high demand. In 2019, it was a beast as it almost doubled in size (gains of 93%). Demand remains robust as Dayforce revenue jumped 32% in the first quarter.
Despite the rapid rise of Dayforce, Ceridian is only growing revenues in the low teens. This is because the company’s legacy bureau business is a drag on financials.
The company is in transition. Thus, it is important to focus on the company’s cloud revenue (and its future) which is growing at a 30% clip. It has long-term contracts and Ceridian’s industry reputation will lead to a greater portion of the cloud-based HCM market share
Mkt Cap: $12.91 Billion
YTD Gains: -18.5%
Fwd P/E: N/A
1Yr Price Target: N/A
7) Descartes Systems
Descartes (TSX:DSG) comes in at number 7 on our list of the best Canadian technology companies to invest in for 2020. Descartes is a global provider of federated network and global logistics technology solutions. It provides a full range of logistic and network solutions that connects trading partners.
The company is proving to be a strong defensive play is and is up 15% in 2020.
Descartes operates the world’s largest multi-modal and neutral logistics network with high profile partners including Coke, Home Depot and American Airlines to name a few. As governments worldwide shut down, logistics are of the utmost importance.
Over the past 10 years, the company has grown earnings at a compound annual growth rate (CAGR) of 13.75 and this growth is expected to accelerate. Over the next couple of years, earnings are expected to grow by 25% annually. In fact, it is one of the few companies whose estimates are being revised higher partly due to the pandemic.
The company is laser focused on the higher-margin service revenues and on transitioning existing clients from its legacy license-based structure to its services-based structure.
Mkt Cap: $5.43 Billion
YTD Gains: 15%
Fwd P/E: N/A
1Yr Price Target: $62.05
6) Kinaxis Inc.
One of the best performing tech companies on the TSX hits number 4 on our list. Kinaxis (TSX:KXS) is well-covered by analysts and is one of the most followed tech companies on the TSX. There are 14 analysts covering the company and all but four rate it a ‘buy’.
It’s easy to understand why. In 2019, the company jumped by 42% and its growth is accelerating. Up 74% in 2020, the company is hitting new highs on an almost weekly basis. The company is well positioned to continue rewarding shareholders as analysts expect the company to grow earnings by a 43% next year.
Kinaxis’ crown jewel is RapidResponse, a cloud-based subscription software for supply chain operations. Not surprisingly, demand for reliable supply chain management software is at an all-time high. Globalized companies are dealing with complex issues, moreso as COVID-19 mitigation efforts are impacting the supply chain in a big way.
The company’s success is dependent on diversifying service revenue originations. It is proving to be successful in this area.
At one point, e Kinaxis’ top 10 clients accounted for more than 50% of sales. In our last update, this was down to 40%. In the company’s most recent filing, the Top 10 account for only 32% of revenue.
Although still high, it is winning new customers at an impressive rate. The more it diversifies, the less risk the company will have. Speaking of risk, Kinaxis is currently quite expensive. In fact, it is priced to perfection. Although it will deliver strong growth, investors are currently paying a premium for this growth.
Mkt Cap: $4.717 Billion
YTD Gains: +78%
Fwd P/E: 119.40
1Yr Price Target: $161.80
5) Open Text
Open Text (TSX:OTEX) isn’t flashy, but it definitely deserves to be in the top 5 of our tech stock list.
It may not receive some of the recognition of its peers but there is no denying its performance. This Enterprise Information Management (EIM) software and solution company has returned approximately 25% annually over the past five years.
The company hasn’t performed as well as its peers during this pandemic – and it is for this reason it has dropped a few spots. However, it still deserves recognition as a top tech stock. It is expected to grow earnings in the mid-teens and is arguably the cheapest tech stock on the index.
It is only trading at only 14 times forward earnings, 2.7 times book value, 3.6 times sales and a PEG ratio of 0.44 – all of which are at, or near the lowest in the industry. On valuation alone it warrants inclusion in the Top 5. Analysts agree as they unanimously rate the company a ‘buy’.
Outside of valuation, OTEX is also gaining a reputation of a reliable dividend payer. In 2017, the company achieved Canadian Dividend Aristocrat status. This prestigious title is reserved for those companies who have a history of raising dividends for five consecutive years.
It is also consistently on the hunt for acquisition. In late December, the company closed on its transformative acquisition of Carbonite. The deal is expected to be highly accretive to cloud earnings and cash flow.
Mkt Cap: $15.224 Billion
YTD Gains: -2.3%
Fwd P/E: N/A
1Yr Price Target: $61.51
4) Real Matters
What was the hottest tech stock of 2019? You’d be forgiven if you thought it was Shopify. No, the best performing tech stock of 2019 was Real Matters (TSX:REAL). This network management company provides software services to the mortgage and insurance industries. In 2019, the company’s stock price jumped 155%!
The best news? It is replicating this performance in 2020. The company’s stock price has almost doubled (+98%) and has been one of the best performing stocks during the pandemic. Since it is proving not to be a one-year wonder – the company has skyrocketed up our list.
Over the next five years, REAL is expected to grow earnings by 50% annually. This places it among the best growth stocks on the Index. Can it maintain this pace of growth? Considering the company beat on both the top and bottom line in each of the past six quarters, I certainly would not bet against them.
Despite the company’s rapid rise, it remains reasonably priced. As of writing, it is trading a forward P/E of 33, a P/S of 3.67 and has a PEG ratio below one (0.35).
Mkt Cap: $2.07 Billion
YTD Gains: 100%
Fwd P/E: 33
1Yr Price Target: $21.57
3) Enghouse Systems
An underrated tech stock, Enghouse Systems (TSX:ENGH) is yet another software company.
It develops enterprise software solutions for a range of vertical markets. The company is one of the least-followed and known on this list. Yet, it has quietly outperformed some of the bigger names.
The company’s stock price has averaged 33% annual growth over the past five years. In 2019, it was much of the same with its share price gaining approximately 40%. It is on pace to achieve similar growth in 2020 with gains of 23% year to date. Pandemic or not, Enghouse continuously delivers.
Enghouse is also one of the few tech-listed Canadian Dividend Aristocrats. It has an industry-leading 13-year dividend growth streak and has raised dividends by double-digits in each of those years.
Analysts’ expect the company to grow revenue by 25% over the next year and all five analysts rate the company a ‘buy’. Enghouse is uniquely positioned as a growth and income stock which is why it consistently ranks in our Top 5.
Mkt Cap: $3.25 Billion
YTD Gains: +16.3%
Fwd P/E: 34.59
1Yr Price Target: $55.20
2) Constellation Software
The runner-up on our list of the best tech stocks for 2020 is Constellation Software (TSX:CSU).
Constellation Software acquires, manages and builds vertical market software (VMS) businesses. The focus of the company’s strategy is acquisitions. The company specializes in capital allocation and has an impeccable record of integration.
It has six operating groups servicing over 125,000 customers in over 100 countries. Constellation also featured prominently on our stocks to buy in 2020.
Don’t let the company’s high four-digit share price scare you off. Over the past five years, the company has grown adjusted net income by 17% annually. In response, its share price has grown by an average of 50% annually over the same time frame.
To put this into perspective, this performance is better than tech giants, Apple, Facebook and Google.
Throughout this pandemic, the company has continued to perform. Constellation’s stock price is up 25% and is hitting all-time highs. It is lead by one of the best management teams in the industry and is one of the safest places in the industry to park your investment dollars.
Mkt Cap: $33.7 Billion
YTD Gains: +25%
Fwd P/E: 37.97
1Yr Price Target: $1551
1) Shopify Inc.
The winner of our best tech stocks to buy in Canada for the fourth year in a row is Shopify (TSX:SHOP). It is by far one of the best tech stocks on the TSX today. One thing we’ve founded, is a lot of investors have mistakenly purchased the American listed version of this stock. Make sure you either purchase the TSX version, or use Norbert’s Gambit to save on exchange fees if you’d rather own the NYSE variant.
Shopify is Canada’s tech darling. Since its IPO in 2015, it has led Canada’s tech resurgence. This cloud-based, multi-channel commerce platform has returned a whopping 3,509% to investors in just over four years. That is a compound annual growth rate of more than 100%!
The best part? The company has captured but a sliver of the $64 billion-dollar industry. It was also our top ranked stock to buy in 2018 and 2019. Until a company knocks it off its perch, it remains the top tech stock in the country.
How has it fared during this pandemic? It continues to defy expectations. The shift to online sales has led to Black Friday-type volumes and it is hitting all-time highs on an almost daily basis. Up 123% this year, the stock has once again doubled.
Although investors can’t expect 100% annual gains to continue indefinitely, Shopify is still poised to grow at an impressive pace. Revenues are expected to grow by almost 50% annually, which is one of the highest growth rates in the industry.
Shopify is also an interesting play on Canada’s recreational cannabis industry. It has struck deals with several of the market leaders and Provinces to be the e-commerce platform of choice for cannabis sales.
Simply put – Shopify has been the best and most consistent performing tech stock on the Index and it is showing no signs of slowing down.
Mkt Cap: $142.05 Billion
YTD Gains: 123%
Fwd P/E: N/A
1Yr Price Target: $870