The Magnificent Seven continues to get a lot of attention, and with good reason. Some of these tech stocks have posted huge profits this year, despite the sell-off at the end of last week.
As of Nov. 15, Nvidia Corp. (NVDA-Q) had gained an astounding 187 per cent this year. Meta Platforms Inc. (META-Q) was up 57 per cent year-to-date. Amazon.com Inc. (AMZN-Q) had gained 33 per cent. Thanks to a strong rally after Donald Trump’s victory, Tesla Inc. (TSLA-Q) is ahead 29 per cent year-to-date. Alphabet Corp. (GOOGL-Q) is up 23 per cent. Apple Inc. (AAPL-Q) was up 17 per cent and Microsoft Corp. (MSFT-Q) has gained about 10 per cent.
All very impressive. But you could have done almost as well investing in homegrown technology stocks, leaving foreign exchange aside.
As of the close of trading on Nov. 15, the S&P/TSX Capped Information Technology index was showing a year-to-date gain of just under 29 per cent. That was by far the best performance among the subindexes and handily beat the TSX Composite, which was up 18.76 per cent for the year.
Three of the best individual performers are picks of my Internet Wealth Builder newsletter. The top gainer at 198 per cent is Celestica Inc. (CLS-T), which is actually running ahead of U.S. powerhouse Nvidia. CLS also posted triple-digit gains in 2023.
Shopify Inc. (SHOP-T), our largest tech stock by market cap at almost $200-billion, has added 48 per cent this year. Constellation Software Inc. (CSU-T) is ahead 35 per cent.
Here are updates on these three Canadian outperformers.
Celestica
Originally recommended on Nov. 20, 2023 at $38.46, US$28.05. Closed Friday at C$115.75, US$82.18.
Background: Toronto-based Celestica was originally part of IBM. In 1996, it was sold to Onyx Corp. It began trading publicly in 1998 with the sale of 20.6 million shares at US$17.50. The company employs 26,000 people.
Celestica has two operating segments: Advanced Technology Solutions (ATS) and Connectivity & Cloud Solutions (CCS).
The ATS segment consists of its aerospace and defence, industrial, healthtech, and capital equipment businesses. The CCS segment consists of the company’s communications and enterprise (servers and storage) end markets.
Performance: This is the hottest stock in the TSX Composite this year and has surpassed its previous all-time high of $108.80, set during the peak of the dot-com bubble in 2000.
Recent developments: Third-quarter results continued strong, and the company guided toward continued expansion in 2025.
Revenue for the quarter was $2.5-billion, up 22 per cent from $2.04-billion in the same quarter of 2023. Adjusted earnings per share were $1.04, compared with 65 cents a year earlier. Adjusted free cash flow (non-IFRS) was $74.5-million, compared with $34.1-million.
Dividend: Celestica does not pay a dividend.
Outlook: “Looking to next year, we continue to see solid demand signals from many of our large customers, which are providing us with visibility for continued growth,” said chief executive officer Rob Mionis. “Our 2025 outlook calls for higher year-over-year revenues and non-IFRS operating margin, which if achieved would represent 15 per cent annual growth in our non-IFRS adjusted EPS.”
Action now: We have already advised newsletter readers to take half profits on this stock and hold the balance. If you have never had a position, make a small investment now and add on dips.
Shopify
Originally recommended on Feb. 22, 2016 at C$2.83, US$2.06 (split-adjusted). Closed Friday at C$152.87, US$108.49.
Background: Shopify is a cloud-based, multichannel commerce platform designed for small and medium-sized businesses. Merchants use the software to design, set up, and manage their stores across multiple sales channels, including web, mobile, social media, marketplaces, brick-and-mortar locations, and pop-up stores. The company is based in Ottawa.
Performance: The stock dropped to the $75-range in August but has recently taken off again and reached an all-time high of $161.86 last week.
Recent developments: Shopify shares were driven higher by strong third-quarter results and an upgraded forecast for the fourth quarter.
Revenue for the quarter to the end of September was $2.2 billion, compared with $1.7-billion in the same period last year, an increase of 26 per cent. Free cash flow was $421-million, up 52.5 per cent from $276-million a year ago. The company reported net income of $344-million (excluding the impact of equity investments), up from $173-million a year ago.
Dividend: Shopify does not pay a dividend.
Outlook: Fourth-quarter revenue is expected to grow at a mid-to-high-20s percentage rate on a year-over-year basis. Gross profit dollars should grow at a year-over-year rate that is similar to the third quarter. Free cash flow margin is expected to be similar to the fourth quarter of 2023.
Action now: The stock is up 5,301 per cent based on the original recommended price. Original investors should take half profits and hold the balance. First-time investors should take a small position now and add on pullbacks.
Constellation Software
Reinstated on Feb. 12/at $3,732.08. Closed Friday at $4,420.89.
Background: Constellation is a large tech company by Canadian standards with a market cap of about $97-billion. It was founded in 1995 to assemble a portfolio of vertical market software companies that had the potential to be leaders in their particular areas of expertise. The company has grown rapidly through a combination of acquisitions and organic growth and continues to apply the same formula.
Performance: The shares recently touched an all-time high of $4,600 and are trading near that level now. The stock is up about 35 per cent year-to-date and shows a gain of 18.5 per cent since it was recommended as a buy in February.
Recent developments: Third-quarter results saw revenue of $2.5-billion, up 20 per cent from the previous year, mainly owing to acquisitions.
Net income attributable to common shareholders decreased 28 per cent to $164-million ($7.74 per diluted share) from $227-million ($10.70 per share) in the same quarter of 2023.
Free cash flow available to shareholders decreased 2 per cent to $362-million, compared with $367-million for the same period in 2023.
For the first nine months of the year, CSU reported revenue of $7.4 billion, up from $6.1-billion in 2023. Earnings attributable to common shareholders were $446-million ($21.04 per share). That compared with $424-million ($20.02) a year ago.
Dividend: The stock pays a quarterly dividend of $1 per share ($4 a year), for a small yield. The company retains most of its profits for acquisitions and other growth opportunities.
Action now: The stock keeps going straight up so if you don’t have a position and have the cash to purchase a few shares, buy. But be aware the stock is expensive and intraday trading prices can vary greatly. For example, last Thursday, there was a difference of about $94 between the daily highs and lows. Place a limit order so you don’t get whipsawed.
Gordon Pape is editor and publisher of the Internet Wealth Builder and Income Investor newsletters.
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