Written by Joey Frenette at The Motley Fool Canada
After a cooldown in late summer, I would look to see whether the broader basket of tech stocks would warm up again as we head into September 2023. Undoubtedly, high interest rates are still working against many technology companies that are in full growth. That said, mature tech companies that still generate sufficient cash flow appear equipped to plow through a high-interest rate environment that could even include a recession.
In this piece, we take a closer look at two promising Canadian tech stocks that have been extremely popular throughout the year. Despite the momentum, all tech stocks still look cheap.
Without further ado, consider shares of C.G.I (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 more turbulence for tech companies and the broader TSX index, I wouldn’t discount either name while they trade at a fair price. reasonable multiples.
CGI is a Montreal-based IT consultant and software developer that reached new all-time highs last month at nearly $142 per share. Shares ultimately fell about 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 is up a whopping 19.6% year to date!
Even if September turns out poorly for the broader markets, I think CGI should be halted, especially after such a solid performance in Q3 2023 with revenues up just over 11% to $3.62 billion, while earnings per year share (EPS) rose by almost 16%. Indeed, CGI is one of the few profitable growth companies that can withstand the headwinds of higher interest rates.
The company also has a lot to gain in the race against artificial intelligence (AI). CGI recently announced that it plans to invest $1 billion in expanding AI services and solutions. AI is indeed a big deal, and CGI understands its power.
At the time of writing, CGI shares trade at 21 times price-to-earnings (P/E) ratio. That’s far too low for the kind of profitable growth and innovation you get. I wouldn’t bet on the stocks heading into the year, even if you expect the red-hot tech stocks to take a breather, as they did for most of August 2023.
Constellation Software is another Canadian tech stock that deserves more attention for its impressive software operations. The stock has soared this year and is up just under 30% year to date. Like CGI, the stock is also very close to hitting a new all-time high.
At around $2,750 per share, it’s not easy for smaller retail companies investors to gain fame in the name. Despite the hefty share price, the valuation still appears modest, especially given the company’s resilience during the past year of macroeconomic headwinds.
The stock trades at just under 32 times its price-to-earnings ratio. While it would be ideal to buy CSU on a pullback, I’m not against buying one stock here if you’re looking for a class of technology winners that can support itself with impressive gains.
Before you consider Constellation Software, you’ll want to hear this.
Our market-crushing team of analysts 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 investment service they have run for almost a decade, Motley Fool Stock Advisor Canada, is beating the TSX by 26 percentage points. And right now, they think there are five stocks that are better buys.
See the 5 stocks * Returns from 8/16/23
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