The pain most Canadian investors felt in 2015 was largely averted by investors into Canada’s tiny public tech sector, but Cormark analyst Richard Tse warns that throwing a dart at the space and hoping for the best probably won’t work in 2016
In a research report to clients today, Tse looked at the year ahead in the Canadian tech space. The analyst notes that the market caps of the biggest 25 Canadian tech names we up 10 per cent in 2015, easily besting a double-digit loss for the composite index. But Tse thinks there are growth challenges and valuation risks faced by some of the legacy names in tech, and warns that stock selection is key.
“As hopeful as we are for 2016, we’re a bit hesitant on our Canadian tech names at the time of writing,” says Tse. “This comes in large part from valuations for the leaders and the growth challenges faced by a number of the legacy names not to mention the potential valuation risk with the US tech names that invariably always have an impact on our Canadian universe of tech stocks. Given that, we think stock selection continues to be as important as ever.”
Tse currently has “Buy” or “(Buy (Speculative)” rating on the following stocks: Absolute Software, BlackBerry, BSM Technologies, CGI Group, Cortex, Datawind, Frankly, Kinaxis, Mitel Networks, OpenText, Sandvine, Solium Capital, Sphere 3D, Symbility, Tecsys, TIO Networks, Tucows and ViXS.
Tse thinks there are several notable themes that investors should watch in 2016. He believes tech spending in general is improving, that the cloud is continuing to grow in importance, and that the Internet of Things (IoT) may be on the verge of a breakout.
Though he cautions against “blind” investment into cheaper names, Tse thinks the relative valuations of smaller names may begin to look attractive against bigger ones in 2016.