2023 is the year when the word “Magnificent Seven” became popular. The term was used everywhere to describe a group of U.S. tech stocks that significantly outperformed the market in 2023.
But by 2024, that wealth will be even more widespread, say analysts at RBC Dominion Securities. The company says Canadian tech stocks will be the biggest beneficiaries of the market.
As The Globe and Mail reported on January 24, analysts Paul Treiber and Maxim Matushansky say this small subsector of stocks is undervalued.
“While valuation multiples for some stocks (such as Shopify) rose significantly in 2023, the majority of Canadian tech stocks remain trading below their historical averages,” the authors wrote. There is. “On an equal-weighted basis, our coverage has traded at 8% below its average valuation over the past 10 years. Compared to the past 5 years, our coverage has traded at 20% below its average valuation. Compared to the past two years, our coverage is still 2% below the average valuation of the past two years. Our coverage is still valuations 10% above the average valuation of the last year. , only last year. With the exception of Shopify, valuations for most Canadian tech stocks remain compressed. Some stocks, such as Shopify and Celestica, have seen significant valuation multiple expansion in 2023. As a result, the average stock valuation multiple in our coverage universe increased by 22 percent in 2023. However, the median stock valuation multiple in our coverage universe increased in 2023. “In 2023, they rose just 4%.Furthermore, in 2023, 13 of the 21 stocks we covered expanded their valuation multiples, while eight saw their valuation multiples compressed.”
Treiber and Matushansky identified four stocks that they believe will do well in 2024.
constellation software (Constellation Software Stock Price, Charts, News, Analysts, Financials TSX:CSU) They say it’s not the cheapest stock, but it’s one that should continue to perform.
“While Constellation’s valuation multiple has increased, we believe the stock is likely to maintain its historically high valuation as Constellation continues to compound capital at high interest rates,” they wrote. writing.
Shopify (Shopify Stock Price, Charts, News, Analysts, Financials TSX:SHOP) isn’t on value investors’ bargain lists, but the pair still think it’s going to be another strong year.
“Given its solid growth, improving profitability, and strong product execution, we believe Shopify is likely to maintain its premium valuation,” they said.
open text (OpenText Stock Price, Charts, News, Analysts, Financials TSX:OTEX) hasn’t been doing very well lately, but Treiber and Matushanski believe the trend will reverse in 2024.
We believe OpenText’s valuation will likely rise toward its historical average as organic growth strengthens, leverage decreases, and FCF increases. OpenText is trading at 8.8x NTM [next 12-month] “EV/EBITDA is below the pre-acquisition three-year historical average of 12x,” they wrote.
lastly, Celestica (Celestica Stock Price, Charts, News, Analysts, Financials TSX:CLS) is a popular stock with analysts.
“In our view, Celestica is likely to continue to outperform in the fourth quarter, given recent positive customer and competitor comments on AI-focused capital investments. “While we believe there is downside risk to the ATS segment guidance, we believe the CCS segment has upside potential through Q4 and FY24,” they said.
