Rather than looking for value, investors should be focused on names that are being driven by the dominant themes that have propelled recent winners, says Cormark analyst Richard Tse. Cormark analyst Richard Tse says that with BlackBerry on the cusp of a takeout, one of the key lessons it provides investors is to stay out of the bargain bin when it comes to technology stocks.
Tse says in the technology sector the data shows that expensive names outperform. The Cormark analyst notes that if you look at Canadian tech names that have a market cap of more than $25-million, the ten most expensive names have outperformed the least expensive names by more than five times, year to date.
Tse says the looming buyout of BlackBerry by Fairfax Financial is a chance for other names to shine here at home, and with an average return of 23% for those techs with market caps above $25-million, he says there are countless candidates ready to fill the potential void.
Rather than look for value, Tse says investors should be focused on names that are being driven by the dominant themes that have propelled recent winners. He says these can be divided into three categories; secular trends, transformational acquisitions and operational pivots or turnarounds.
As for secular themes, Tse says the rise of the machine to machine vertical bodes well for the continued success of Sierra Wireless (TSX:SW) and BSM Technologies (TSXV:GPS), which are both up by triple digits this year. He likes the cloud computing space, and thinks Sphere 3D (TSXV:ANY) and Destiny Media (TSX:DSY) are candidates to continue their remarkable gains. He also places Destiny in another hot space, video, with power performer Avigilon (TSX:AVO).
In the category of transformational acquisitions, Tse likes CGI Group (TSX:GIB.A), Macdonald Dettwiler (TSX:MDA), and Redknee (TSX:RKN).
As for companies that have made operational pivots, Tse likes Celestica (TSX:CLS), Mitel (TSX:MNW) and Points International (TSX:PTS), which have all performed exceptionally well in 2013.