BlackBerry’s market share may be falling, but the company’s cash position remains compelling. In the days before mining stocks began underperforming, an investor looking at a technology stock in Canada would likely be doing so with an eye towards value.
What’s the price to sales ratio? What’s the enterprise value look like? Does the stock have a low earnings multiple? Today, with a sector rotation towards technology decidedly underway, the Ben Graham-like standards have loosened somewhat, and many are adding techs with a speculative element to the mix.
But value is value, especially in an environment in which the prices of many techs have left investors looking for stocks that haven’t raced out of the gate. Calculating upside is a tricky game, but figuring downside might be easier. One of the phrases that populates Graham’s writing the most is “margin of safety”. “Even with a margin [of safety] in the investor’s favor, an individual security may work out badly,” he wrote in his seminal work, “The Intelligent Investor”, …”for the margin guarantees only that he has a better chance for profit than for loss – not that loss is impossible. But as the number of such commitments is increased the more certain does it become that the aggregate of the profits will exceed the aggregate of the losses.”
When it comes to margin of safety, few resources are as dependable or as easy to calculate as cash. We count down ten Canadian stocks that are cashed up, ranking them according to the percentage of cash and short term investments they have compared to their overall market capitalization. We pulled this data from stocks included in the TSX Technology sector, excluding those with a market cap below $10-million. The list uses each company’s most recent quarterly report and the market capitalization as of today, February 3rd, 2014.
1. Intrinsyc Software (TSX:ICS)
Cash and Short Term Investments: $9.17-million
Market Cap: $15.51-million
Cash Percentage: 59.1%
The topline seems to fall every year for Vancouver’s Intrinsyc Software, but the company’s cash position has remained relatively stable. Intrinsyc, which was founded in 1992 as ITC Microcomponents and changed its name 1997, soared to over $3 in 2001. The company, however, has battled through a myriad of restructurings and false starts in the time since.
2. BlackBerry (TSX:BB)
Cash and Short Term Investments: $3.06-billion
Market Cap: $5.30-billion
Cash Percentage: 57.7%
Would Warren Buffett buy BlackBerry? The “Oracle of Omaha” doesn’t buy tech, but he might be intrigued. Investors who are reticent to catch a falling knife may be overlooking real value in the struggling device maker. But recent signs are showing that many shareholders are actually buying in to new CEO John Chen’s turnaround plan. The BlackBerry boss says he will focus on the company’s BlackBerry Enterprise Server and the newly cross platformed BBM to get the company back in the black.
3. NexJ Systems (TSX:NXJ)
Cash and Short Term Investments: $28.28-million
Market Cap: $50.76-million
The IPO of Ottawa’s NexJ, along with Vancouver counterpart Avigilon, were two of the early signals of a Canadian sector rotation. But while Avigilon has soared, NexJ has foundered. But several company insiders are betting there are better days ahead, and have made stock purchases in the open market.
This article is brought to you by Serenic (TSXV:SER). Serenic’s cash position as of its most recently reported quarter (November 30, 2013) was $3.51-million, higher than its market cap as of February 3rd, 2014, which was $3.01-million. The company has no long term debt.
4. Hartco (TSX:HCI)
Cash and Short Term Investments: $18.82-million
Market Cap: $34.77-million
Shares of Montreal-based IT provider Hartco haven’t gone anywhere for some time, but scratching the surface reveals a hive of activity. After watching its CFO depart early last year, Hartco recently announced a review of strategic options after founder Harry Hart made the decision to sell his majority stake in the company.
5. Webtech Wireless (TSX:WEW)
Cash and Short Term Investments: $22.15-million
Market Cap: $42.19-million
Vancouver’s Webtech Wireless, which was founded 1999, spiked to $7 in April of 2007 on the promise that its GPS tracking of transit and commercial fleets could bring measurable cost reductions for large customers. But the company’s shares have languished in the time since, as losses piled up and patent disputes made investors jittery. The sale of the company’s NextBus division last year has lifted the stock off its lows, but it remains nowhere near its historic high.
6. RDM Corp. (TSX:RC)
Cash and Short Term Investments: $20.13
Market Cap: $48.87-million
Waterloo’s RDM Corp recently became one of a handful of Canadian techs to declare a dividend after the company earned (U.S.) $780,000 in its Q1, 2014. The company, which is a leader in the remote deposit capture (RDC) market, counts four of the top ten financial institutions in the United States as customers for its payment processing solutions.
7. DDS Wireless (TSX:DD)
Cash and Short Term Investments: $9.75-million
Market Cap: $24.75-million
Aside from the odd spike, the trend for DDS Wireless shareholders has been generally slow and generally up over the past three years. The Richmond, B.C.-based company is seeing growing demand for its wireless mobile data solutions that manage vehicle fleets. DDS Wireless is another is that rarest of clubs; a Canadian tech that pays a dividend.
8. Redline Communications (TSX:RDL)
Cash and Short Term Investments: $17.61-million
Market Cap: $46.04-million
Shares of Redline Communications began a steep and sudden descent after CEO Eric Melka announced his resignation late last year, and have yet to fully recover. Some analysts, including Byron Capital’s Dev Bhangui, think the market is overreacting. The company that Melka turned around, he says, is on a clear growth path and is well positioned for the future.
9. Wi-LAN (TSX:WIN)
Cash and Short Term Investments: 142.27-million
Market Cap: $384.9-million
Last October, a jury in Texas found that Wi-LAN’s U.S patent number RE37,802 was not found infringed upon by Apple. Shares of the Ottawa patent player fell 25% the following day, and have basically flatlined since. Fiscal 2013 was not a great year for Wi-LAN, but the company did deliver a surprise Q4 last week, posting a $2.4-million profit. “Our determined effort overcame litigation setbacks to sign licence agreements with many defendants including BlackBerry, HTC and Sierra Wireless. These agreements contributed to our strong revenues and adjusted earnings in the fourth quarter,” said CEO Jim Skippen.
10. Celestica (TSX:CLS)
Cash and Short Term Investments: $546.80-million
Market Cap: $1.85B
Celestica is proving there is life after BlackBerry. After counting on the Waterloo device maker for upwards of 20% of its business as late as 2011, Celestica is now trading near multi-year highs without help from Canada’s most famous tech. After posting 2013 earnings of (U.S.) $118-million CEO Craig Muhlhauser said the company was on the right track. “We continued to improve profitability throughout 2013, despite a challenging business environment,” he said, adding: “We look forward to building on this positive momentum throughout 2014, with a focus on achieving profitable growth in our target markets and accelerating our time to value for our customers and shareholders.”