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After a late-summer cooldown, I’d look to see if the broader basket of tech stocks would warm up again as we head into September 2023. Undoubtedly, the high interest rates are still working against many technology companies that are in full growth. That said, mature tech companies that still generate ample cash flow seem well equipped to plow through a high interest rate environment that could even lead to a recession.
In this piece, we take a closer look at two promising Canadian technology stocks that have been extremely popular throughout the year. Despite the momentum, all technology stocks still look cheap.
Without further ado, consider stocks of CGI (TSX:GIB.A) and Constellation software (TSX:CSU), two software companies that Canadians should take note of 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 as they trade at fairly reasonable multiples.
CGI
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 fell about 9% before recovering most of the ground in late July and August. Today, the stock is within one percentage point of hitting new highs again and is up a whopping 19.6% year-to-date!
Even if September turns out badly for the broader markets, I think CGI should be shut down, especially after such a solid performance in Q3 2023 where revenues were up just over 11% to $3.62 billion, while earnings per annum share (EPS) rose nearly 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’s shares trade at 21 times price-to-earnings (P/E). That’s way too low for the kind of profitable growth and innovation you get. I wouldn’t bet on the stock going into the end of the year, even if you expect the glowing technology stocks to take a breather, as they did for most of August 2023.
Constellation software
Constellation Software is another Canadian tech stock that deserves more attention for its impressive software business. The stock has soared this year and is up just under 30% so far. 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 investors to gain exposure to the name. Despite the hefty share price, 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 opposed to buying one stock here if you’re looking for a class of technology winners that can support itself with impressive gains.
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