Volatility means bargains for Canadian tech stocks: Canaccord Genuity

Some of them are down because of overall market volatility and some are down due to company-specific issues, but Canaccord Genuity analyst Robert Young says this is a good time to be buying certain Canadian tech stocks.

In a bi-weekly research report to clients issued Friday called “#TECH – Canadian Technology Review”, Young said pullbacks are not a reason to pull out of solid tech names.

“Volatility represents opportunities,” the analyst says. “Markets have been volatile of late, which has been having an impact on some of the high-flying technology stocks in our coverage universe. We noted in our prior #TECH that Canadian dollar strength may take some of the wind out of the M&A trends that we have seen ramp up over the past 12 months but we continue to expect that more acquisitions are likely, be it from global players looking at Canada or domestic companies looking to consolidate. Some of the pullback in stocks has been due to external market forces but there have been company-specific issues that resulted in share price drops. We have been highlighting Shopify (down -8.4% in August) as a stock to buy and we continue to consider any pullback as an opportunity to add to positions. Kinaxis, too, has sold off significantly this month (-12.7%) and, at these levels, may well prove to be an excellent entry point for investors with a longer horizon.”

Young currently has a “Hold” rating and one-year price target of $75.00 on Kinaxis. The analyst has a “Buy” rating and $16.00 one-year target on Real Matters. And Young and Richard Davis currently have a “Buy” rating and (U.S.) $115.00 target on Shopify.

“We reiterate that there could be some softness in tech stocks against a strengthening Canadian dollar for the rest of the summer as the market remains somewhat volatile for technology names,” Young adds. “We also maintain that there are companies in our coverage universe that we consider “tier one” names with long revenue growth runways and highly defensible business models. We continue to like Shopify and Real Matters, which we feel remain buying opportunities, particularly amidst pullbacks. In our view, M&A remains a potential catalyst for numerous Canadian technology names and we think more “second tier” names will likely be acquired at fair, not stratospheric, valuations.”

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