Buy OpenText as a defensive play, this investor says

Tech stalwart OpenText (OpenText Stock Quote, Chart, News TSX:OTEX) has already made strong gains in 2020 but there should be more upside ahead, according to fund manager Michael Decter, who thinks that Canadian tech is a good place to park your money over the near term.

Waterloo, Ontario-headquartered OpenText is an enterprise information management company with a history of solid returns and it even sports that rare feature among tech companies, a dividend, which currently holds a yield of 1.4 per cent.

OpenText made the news in November with the acquisition, which closed in December, of Boston-based endpoint security company Carbonite, and while OpenText is known to be a serial acquirer, the Carbonite purchase was a major splash, not only in terms of cost —at $1.4 billion inclusive of cash and debt— but the buy has been seen as a positive move by OpenText into the small to medium-sized business (SMB) space, where OpenText had traditionally been known for its enterprise-level customer base.

“This acquisition will further strengthen OpenText as a leader in cloud platforms, complete end-point security and protection, and will open a new route to connect with customers, through Carbonite’s marquee SMB/prosumer channel and products,” said Mark J. Barrenechea, OpenText CEO & CTO, in a November press release. “We are very excited about the opportunities that Carbonite will bring, and I look forward to welcoming our new customers, partners and employees to OpenText.”

Decter says OTEX is one of a number of Canadian tech names that are looking good over the next year and a half.

“We recently bought quite a bit of OpenText,” says Decter, CEO and chief investment officer at LDIC, speaking to BNN Bloomberg on Tuesday. “We like the technology space for a whole raft of reasons but we really like companies like OpenText, Descartes Systems, Kinaxis that roll up by acquiring.”

“OpenText has recently bought a company called Carbonite which is going to help their small business, consumer business,” says Decter. “OpenText is focused on government and the large enterprises and it has been very good at finding additional products to bring into their packages. We like it for the long haul.”

OTEX has been a solid performer for a number of years, returning 85 per cent since January 2015 and finishing 2019 up 29 per cent. So far in 2020, the stock has gained ten per cent.

Canadian tech has been a strong performer of late, led by Shopify which has posted incredible gains over the past 12 months.

Not typically known as a defensive play, Decter says technology stocks could be an investor’s strong suit over the next while.

“We’re thinking that technology may be one of the safest places to be over the next 12 to 18 months,” Decter said. “We have some south of the border holdings but we tend to like the Canadian tech stocks that are rolling up because we think that they’re less expensive.”

“But we certainly do own some of the FAANG stocks and streaming companies, Netflix and Disney. We’re putting more weight on the US recently. We think it’s a stronger economy and a better way to play the global economy than most of the Canadians,” he added.

“But OpenText would be one of our leading tech stock holdings,” Decter concluded.