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 11.15%. The TSX Composite Index? It posted a 4.91% 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. Over the past five years, the S&P 500 and the TSX Technology Indexes have a CAGR of approximately 20%. Tech stocks, especially in Canada, and booming right now. Which is exactly why we decided to come out with this list of the top technology stocks in Canada.
Tech stocks just aren’t as prevalent on the TSX
The IT sector accounts for just over a quarter of the S&P 500. At 25.76%, it is almost double that of the second largest sector. In Canada, the technology sector accounts for only 3.9% of the TSX Index. This ranks the sector 9th out of a possible 11.
As you can see, the lack of Tech-listed stocks 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 13 Tech Stocks. Combined, an equal-weighted position in each of these stocks would have returned almost 290% 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. Its outperformance is accelerating. Over the past year, the TSX has returned just shy of 7% whereas the TSX Technology Index has returned a hefty 32.2%. And the best part is? You can still get Canadian tech stocks 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 13 tech stocks to buy today.
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15) The Intertain Group Ltd.
Like online gambling? Then you’ll probably like number 15 on our list of the best tech stocks in Canada for 2019. The Intertain Group (TSX:ITX) and its parent company Jackpotjoy, is in the online gambling business. Much like real-world gambling, this one is not for the faint of heart.
The company has a beta or 3.6, which implies significant volatility. During our last update, Intertain Group was up 11% year to date (YTD). A few months later, it is down almost 15% YTD! For a company like Intertain its best to ignore short term volatility and look at the long-term chart. Next year, analysts estimate the company will grow earnings by 38%.
What is driving this growth? In May, the Supreme Court cleared the way for States to legalize sports betting. This is a multi billion-dollar industry that is now open for business.
A word of caution, this is the riskiest company on the list of the Top Tech Stocks.
14) Tucows Inc.
Dropping from number 12 to 14 on our list of the top tech stocks for 2019 is Tucows (TSX:TC). 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.
Don’t let the company’s poor performance year to date scare you. Until this year, it had consistently outperformed the TSX Index. Over the past five years, Tucows stock has returned 674%. No other tech stock on this list has performed better over the same time-period.
Tucows is banking on Ting mobile and internet to drive growth. In 2019, four major U.S. cities are expected to come online. The company’s domain registration business will continue to provide stable cash flows as it builds out Ting infrastructure.
13) Celestica Inc.
Next on our list of the best tech stocks for 2019 is Celestica Inc (TSX:CLS). The company is a global leader the design, manufacturing and supply chain solutions.
It is also one of the most reasonably priced tech companies. Trading at a forward price-to-earnings (P/E) ratio of 9.26, and a price-to-sales of 0.27, the company is cheap. Earnings are expected to grow by approximately 15% over the next couple of years.
The company recently acquired Atrenne Integrated Solutions Inc., a designer and manufacturer of ruggedized electromechanical solutions. This gives Celestica added exposure to the aerospace and defense sector which is expected to boom over the next few years.
Space Force anyone? As far fetched as it sounds, NASA is fully behind Trump’s plan to patrol the space system. Companies that have exposure to the industry stand to benefit from increased spending.
12) Absolute Software
New to our list of top Canadian tech stocks for 2019 is Absolute Software (TSX:ABT). Absolute Software operates in a sector of the industry that is experiencing significant growth – cybersecurity. The company offers a range of endpoint security and data risk management solutions to commercial, healthcare, education and government customers.
Fresh off the appointment of a new Chief Executive Officer, Absolute has been one of the best performing tech stocks. Year to date, the company’s share price has shot up approximately 22%.
Over the past month, it has bucked the losing trend of the sector and has gained 15%. Whereas most industry leaders are trading well below their 52-week highs, Absolute is setting new ones.
Over the past five-years, the company has grown earnings by approximately 25% on average. Expect much of the same over the next couple of years.
11) Pason Systems Inc.
Depending on where you look, Pason Systems (TSX:PSI) might be buried in the Energy Sector as an Oil & Gas Equipment Services company. Make no mistake about it, Pason Systems is a tech company. A good one at that. That’s why it has hit number 11 on our list of tech stocks to buy today.
Pason’s technology is used to compile and evaluate data from oil rigs. In the past quarter, all five of the company’s segments experience double-digit growth. It has a rock-solid balance sheet with no long-term debt to speak of and $111 million in cash.
Yielding 3.68%, Pason also makes for an interesting income play. Despite a tough period in the oil patch, the company never cut its dividend. As the price of oil rebounds, oil rigs are coming back online and Pason is well positioned to benefit. In 2019, earnings and revenues are expected to grow in the double digits.
We’ve cheated a little with Sylogist (TSX:SYZ) as it is the only one on the list currently trading on the TSX Venture.
Why did we include it? This company has been a beast. This innovation and intellectual property company operates in two sectors – Public and Private.
The company has a beautiful one-year chart. Year to date, the company’s share price has risen by a hefty 41%. Enterprise growth is the main reason for its recent outperformance. Over the past two years, the company has doubled revenue and tripled earnings per share.
Income investors also have something to cheer about as it has a decent 2.21% yield and a seven-year dividend growth streak. It’s one of only two Venture companies to achieve Canadian Dividend Aristocrat status.
Oh, and we should also mention, that is has paid out a special dividend four times since 2015. Steady income growth is yet another reason its inclusion on this list is warranted.
9) Ceridian HCM Holding Inc.
Jumping up to number 9 on our list of the best tech stocks to buy right now is Ceridian (TSX:CDAY). 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. It’s flagship Dayforce product, a cloud HCM platform is in high demand.
Ceridian is growing revenues at a pace of approximately 12% this year. Although this does not appear to be great on the surface, its legacy bureau business is a drag on financials.
More importantly, the company’s cloud revenue (and its future) is growing at a 30% clip. It has long-term contracts and its industry reputation will lead to a greater portion of the cloud-based HCM market share.
8) Sierra Wireless
Sierra Wireless (TSX:SW) is number 8 on our list of the top tech stocks to buy in 2019. Sierra Wireless is one of Canada’s most well-known Internet of Things (IOT) companies. The IOT market is expected to hit $214 billion by 2023. Yes, you read that correctly.
Over the past five years, Sierra has grown earnings by a compound annual growth rate (CAGR) of almost 30%. Moving forward, analysts expect the company to grow earnings by 34% in 2018 and 38% in 2019.
In 2015, Sierra’s addressable market was approximately $3 billion U.S. In 2021, its addressable market is expected to reach $30 billion, a ten-fold increase. Sierra has the expertise and brand awareness to be a leader in the complex deployment of IOT solutions.
It also recently acquired Numerex which drove a 218% increase in IOT service revenue in the second quarter. With a pristine balance sheet, it is well positioned to acquire more complimentary businesses.
7) CGI Group Inc.
Number 8 on our list of the best growing tech stocks is CGI. The CGI Group (TSX:GIB.A) was recently featured as our stock of the week and was also one of our top picks of 2018 and 2019. It manages information technology (IT) services, as well as business process services (BPS).
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.
So far, 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.
6) Descartes Systems
Descartes (TSX:DSG) comes in at number 6 on our list of the best Canadian technology stocks to invest in for 2019. 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.
It 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.
Over the past 10 years, the company has grown earnings at a compound annual growth rate (CAGR) of 15% and this growth is expected to accelerate. Over the next couple of years, earnings are expected to grow by 25% annually.
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.
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 35% annually over the past five years.
Of the 13 analysts covering the company, 12 rate the company a ‘buy’.
What differentiates Otex from others on this list, is that it’s 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.
In May, the company extended its dividend growth streak to six years with a 15% dividend raise. The company has been of the hardest hit tech stocks over the past couple of months. Don’t fret, it’s a great buying opportunity as the stock is now one of the cheapest in the sector.
4) Kinaxis Inc.
One of the best performing tech stocks 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 13 analysts covering the company and all but two rate it a ‘buy’.
It’s easy to understand why. Despite being dragged down by tech weakness, the company has still returned 17% year to date, and 25% over the past year. It also has one of the highest expected growth rates on the Index. Analysts expect the company to grow earnings by a CAGR of 19% over the next five years.
Kinaxis’ crown jewel is RapidResponse, a cloud-based subscription software for supply chain operations.
The company’s success is dependent on diversifying service revenue originations. Kinaxis’ top 10 clients account for approximately 40% of sales.
The good news is that it has been signing important new customers. It recently added automotive giants Toyota and Volvo as key RapidResponse customers.
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 a compound annual growth rate of 45% over the past five years.
Enghouse is also the only other tech company aside from Otex that has achieved Canadian Dividend Aristocrat status. It has a 12-year dividend growth streak and has raised dividends by double-digits in each of those years.
Analysts’ expect the company to grow earnings by 26% over the next year. Enghouse is uniquely positioned as a growth and income stock.
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2) Constellation Software
The runner-up on our list of the best tech stocks for 2019 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 2019, coming in at number 15.
Don’t let the company’s high triple-digit share price scare you off. Over the past five years, the company has grown adjusted net income by 30% annually. In response, its share price has grown by a compound annual growth rate of 91% over the same time frame.
To put this into perspective, this performance is better than tech giants, Apple, Facebook and Google.
None of the 12 analysts rate the company a sell, and the average one-year price target is $1050, 15% upside from today’s price.
1) Shopify Inc.
The winner of our best tech stocks to buy in Canada for the 2nd year in a row is Shopify (TSX:SHOP). It is by far one of the best tech stocks on the TSX today.
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 435% to investors in just over three years. That is a compound annual growth rate (CAGR) 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.
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, and the company is expected to post earnings per share of $0.77 in 2019, up over 100% from 2018 estimates.
The company has endured years of losses and once Shopify starts to turn a profit it can really soar.
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.