After a late-summer cooldown, I’d look for the broader basket of tech stocks to heat up again as we head into September 2023. Undoubtedly, high rates are still working against many tech firms that are in full-on growth mode. That said, mature tech firms that continue to generate ample cash flow seem equipped to plow through a high-rate environment that may even see a recession rear its ugly head.
In this piece, we’ll have a closer look at two promising Canadian tech stocks that have been smoking hot through the year. Despite the momentum, each tech stock still looks cheap.
Without further ado, consider shares of CGI (TSX:GIB.A) and Constellation Software (TSX:CSU), two software companies that Canadians should strongly consider as we head into September. Even if September brings forth more turbulence for technology firms and the broader TSX Index, I’d not count either name out while they’re trading at fairly reasonable multiples.
CGI is a Montreal-based IT consultant and software developer that hit new all-time highs last month at nearly $142 per share. Shares eventually slid by around 9% before recovering most of the ground in late July and August. Today, the stock is within a percentage point of hitting new highs again and up a whopping 19.6% year to date!
Even if September turns out to be ugly for broader markets, I think it’ll be to stop CGI, especially after such a solid third-quarter fiscal 2023 result that saw revenues rise by just north of 11% to $3.62 billion, while earnings per share (EPS) popped nearly 16%. Indeed, CGI is one of the rare profitable growth companies that can shrug off the headwind of higher rates.
The company also has a lot to gain in the artificial intelligence (AI) race. Recently, CGI noted its intent to invest $1 billion in the expansion of AI services and solutions. Indeed, AI is a big deal, and CGI understands its power.
At the time of writing, shares of CGI trade at 21 times trailing price to earnings (P/E). That’s way too low for the type of profitable growth and innovation you’re getting. I’d not dare bet against the stock going into year’s end, even if you expect red-hot tech stocks to take a breather, as they did through most of August 2023.
Constellation Software is another Canadian tech stock that deserves more attention for its impressive software business. The stock has been rocketing this year, now up just shy of 30% year to date. Like CGI, shares are also very close to hitting a new all-time high.
At around $2,750 per share, it’s not easy for smaller retail investors to gain exposure into the name. Despite the hefty share price, the valuation still seems modest, especially given the firm’s resilience through the past year of macro headwinds.
The stock trades at just under 32 times forward P/E. Though it would be ideal to buy CSU on a pullback, I’m not against buying one share here if you’re looking for a class of tech winners that can back itself up with impressive profits.
Before you consider Constellation Software, you’ll want to hear this.
Our market-beating analyst team just revealed what they believe are the 5 best stocks for investors to buy in August 2023… and Constellation Software wasn’t on the list.
The online investing service they’ve run for nearly a decade, Motley Fool Stock Advisor Canada, is beating the TSX by 26 percentage points. And right now, they think there are 5 stocks that are better buys.
See the 5 Stocks
* Returns as of 8/16/23
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