Canadian IT and consulting company CGI Group (TSX:GIB.A) may not be the sexiest tech stock on the block but it’s the kind of well-managed, profitable company that deserves a place in your portfolio, says Brian Madden, senior vice president at Goodreid Investment Council.
A grandaddy in the tech world, CGI started up in 1976 and has grown to become the fifth largest independent IT and business consulting firm in the world. With over 73,000 employees worldwide and annual revenue of over $10 billion, CGI is also a bonafide Canadian success story that nonetheless flies a little under the radar, says Madden.
“The bear case or the knock against this company historically has been sluggish organic growth and that it’s just not necessarily as sexy as the other technology stocks, perhaps, south of the border,” Madden told BNN Bloomberg Thursday.
“It does blocking and tackling and outsourcing and what have you. But the organic growth rate is accelerating over the last couple of quarters and there’s good reason to believe that there may be more in the pipeline,” he says.
CGI’s share price has been on a steady rise for much of the past decade, with the stock climbing an impressive 22 per cent year-to-date. Last month, CGI reported a Q2 profit of $274.4 million on revenue of $3.0 billion, up 8.3 per cent year over year. Its EPS was 94 cents, compared to 90 cents a year ago.
Madden says that CGI has done a great job at using acquisitions to not only plug holes in its capabilities but to fulfill its nearshoring strategy.
“In this era of protectionism, you can imagine that offshoring jobs to India or what-have-you in a call centre or a software coding factory is not politically very powerful in the United States,” says Madden. “So they’re boots are on the ground in the US. They’re making these acquisitions and, of course, they have a very under-leveraged balance sheet, so they have ample financial firepower to make a larger, more transformational deal, something that they’ve executed on successfully in the past.”
“It’s a long-term hold. I guess maybe diamonds are forever and not many other things are, but this is as close as it gets in the stock market.” he says.