How to Profit Now from Canada's Overlooked Tech Market
Companies / Tech Stocks Mar 13, 2014 - 10:57 AM GMTBy: Money_Morning
Michael A. Robinson writes: Many investors think of Canada as the land of mining stocks, and not without good reason.
It's resource-rich and home to a legion of mining firms that produce everything from gold and silver to iron ore. Canada ranks among the world's top five producers of 14 mineral commodities and is the world leader in the production of potash and uranium.
Of course, as a long-time tech investor I've followed many of these mining firms for a very simple reason. Materials like gold, silver, and rare earths touch a wide swath of tech products, from advanced defense systems to web-enabled autos, smartphones, and tablets.
Here's the thing. Resource firms (along with Silicon Valley to the south) greatly overshadow Canada's burgeoning tech scene. Yet the nation is home to thousands of companies in computing, e-commerce, information technology, and medical devices.
The trade group, the Information Technology Association of Canada, says its industry alone counts some 33,300 companies. Together, they generate a combined $155 billion in annual sales.
Unfortunately, the most famous Canadian tech firm of all remains troubled BlackBerry Ltd. (Nasdaq: BBRY). And yes, the mobile phone maker is making a comeback, but it is still treading water in an industry full of proven winners.
So while the potential for BlackBerry's rebound may be appealing to some, we've got three Canadian tech plays that offer much richer returns. And BlackBerry's high-profile struggles effectively "hide" their profit potential...
Canadian Tech Opportunity No. 1
Mitel Networks Corp. (Nasdaq: MITL) is a small-cap communication and collaboration software company that caters to small and medium-sized businesses.
In particular, the company is known for its advanced contact center platform that includes mobile chat and also helps mid-market firms generate sales leads while lowering expenses.
Mitel has software that enables clients to communicate via hosted data centers known as The Cloud, which market analysts say is worth roughly $50 billion globally.
And the stock has a recent catalyst. In late January, Mitel completed the $370 million merger with fellow Canadian tech firm, Aastra Technologies.
The move solidifies its position in cloud computing and gives Mitel an annual sales rate of around $1.1 billion. It also means the combined firm now has 60 million users around the world and makes Mitel the market leader in Western Europe.
The new momentum means CEO Richard McBee's growth strategy is working. He joined the firm in early 2011, several months after the stock began a sharp decline under the previous CEO. Mitel fell from around $12.30 a share to roughly $2.30 by the end of 2011.
Now trading at around $10.20, it's up more than 161% in the last 12 months. But don't worry. The stock still has a lot of upside left.
If it just got back to its four-year high of $12.30 a share on April 22, 2010, that alone would mean an increase of 20%.
But I believe the stock will do much better than that as it has another new catalyst. You see, many institutional investors won't touch a stock below $10, or may be restricted from doing so.
At its current price Mitel has become "institutional grade," which should increase demand for the stock as more pros invest.
Canadian Tech Opportunity No. 2
Known as one of the world's leading data management firms for large organizations, Open Text (Nasdaq: OTEX) ranks as the biggest software company in Canada.
It earns rave reviews for its consistent approach to operations and the stock's steady gains. In fact, the Canadian financial media calls Open Text the "Anti-BlackBerry."
Of course, a roster of A-list clients helps a great deal. Some of Open Text's stable of blue chip clients include The Coca-Cola Company (NYSE: KO), BP plc (NYSE: BP), and Visa Inc. (NYSE: V).
In January, the company completed the acquisition of GXS Group, which provides corporate cloud services. That roughly $1.1 billion deal greatly expanded Open Text's customers.
Open Text added such marquee clients as Bank of America Corp. (NYSE: BAC) FedEx Corp. (NYSE: FDX), and General Electric Co. (NYSE: GE).
With a market cap of $5.95 billion, the stock trades at roughly $50 a share. It has operating margins of more than 17% and a forward PE of 13.91 about a 15% discount from the overall market.
The stock has two new catalysts. In January, the firm reported earnings that beat the consensus of analysts and it announced a 2-for-1 stock split.
Canadian Tech Opportunity No. 3
Smart Technologies Inc. (Nasdaq: SMT) is a company that literally lives up to its name. It's a supplier of interactive education tools used by more than 40 million students in more than 175 countries.
As such, it has a rich legacy in this sector. In 1991, the company developed the first interactive whiteboard, called the SMART Board. Since then, the tech firm has made over two million of them.
Smart Technology also has expanded its product line to include audio enhancement and student response systems, among other interactive offerings.
Frankly, I'd like to see stronger financials. But the company is working on it.
To further fatten its revenue stream, Smart Technologies is moving more deeply into the corporate e-learning market. It's still a relatively new field, but market forecaster IBISWorld already estimates the global size at around $26 billion.
Smart Technologies needs to grab only a small portion of this market for it to have a dramatic impact on sales. Just capturing 5% of the overall market could add $1.3 billion over the next several years.
Trading at just $3.50 a share, Smart Technologies has plenty of room to run. With a market cap of $450 million, the stock has a forward PE of 23, a roughly 20% premium to small caps as a group.
But the PEG ratio is a different story altogether. A ratio of 1 means the stock is trading at a "fair value." But Open Technologies has a PEG ratio of minus 2.58.
These Opportunities Are Just the Start...
The point is, our tech neighbors to the north often get overlooked by investors focused on more famous U.S. names.
But as these three tech opportunities prove, there's more to making money off Canadian stocks than focusing on metals (although there are some great opportunities, there too).
And after you rack up large returns on these tech firms, we'll keep looking north for profits so you don't miss an opportunity with this great Canadian "commodity."
Source : http://moneymorning.com/2014/03/12/buy-shares-google/
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