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10 Tech stocks for 2023 from ATB Capital

It’s a new year filled with promise that 2023 will turn out better for tech and growth stocks than 2022. Supporting that notion is ATB Capital Markets, who just released their 2023 Growth and Innovation Outlook, naming ten stocks in their coverage universe that should do well by investors. 

Analyst Martin Toner reflected on the past 12 months where tech stocks fared poorly compared to the overall market, suggesting that underperformance implies opportunity going forward. Toner pointed out that the S&P IT sector and the Nasdaq Index were down 28.9 per cent and 33.1 per cent, respectively, in 2022 compared to the broader S&P 500 which was down 19.4 per cent. 

Toner said value crushed growth in 2022, pointing to the Russell 1000 Value Index which was down 9.4 per cent compared to the Growth Index down 29.6 per cent.

“2022 was a very tough year for markets and for growth stocks in particular,” Toner wrote. “Inflationary pressures, made worse by the conflict in Ukraine, led to a rapid rise in rates. A growing recession risk reversed the momentum from the pandemic. Valuations compressed at a historically rapid rate. After years of outperforming major indices, technology underperformed significantly.”

But there’s reason for optimism heading into the new year, Toner argued, noting that high-quality business models such as SaaS companies held up well, even as e-commerce names struggled against the backdrop of economies emerging from the pandemic. Inflation has taken its toll and interest rates have shot up — bad for tech and growth names, but Toner said with prices now stabilizing around the globe, inflation indicators are looking better. “We may have reached the peak in monetary policy response,” Toner said.

Moreover, Toner believes the 2022 correction in growth stocks, coming after years of outperforming value stocks and major indices, has now taken growth names into “oversold” territory, making for a brighter picture up ahead.

“While predicting the macro is difficult and uncertain, investors can enter growth stories at much more attractive valuations,” Toner said.

With that in mind, below are ten names in alphabetical order that Toner and ATB have set out as attractive picks for investors. All target prices are written in Canadian dollars unless specified otherwise and all projected returns are listed as of the ATB report’s publication date.

Stock: Blackline Safety (Blackline Safety Stock Quote, Charts, News, Analysts, Financials TSX:BLN)

ATB Rating: Outperform

Target Price: $3.50

Projected 12-month return: 93.4 per cent

Toner said oil and gas sector detection and monitoring company Blackline Safety is now emerging from a period of high valuation, opportunistic fundraising, rapid spending increases, heavy losses and an acceleration of the company’s product road map. The analyst said the company will be ramping up its G6 product line in 2023 along with making gains in its top and bottom lines.

“Given the shift in sentiment and macro backdrop, Blackline has instituted a price increase and reduced service levels to boost margins. The result, we believe, will be continued high levels of revenue growth and improving margins. The Company believes it can reach profitability in the second half of FY2023,” Toner wrote.

Stock: Docebo (Docebo Stock Quote, Charts, News, Analysts, Financials TSX:DCBO)

ATB Rating: Outperform

Target Price: $90.00

Projected 12-month return: 94.6 per cent

Toner likes online learning management platform Docebo for its growth potential, as he sees DCBO as still a young company with lots of expansion ahead, even as management has done well up to this point. Toner said investors can expect cost containment and margin expansion in 2023, with revenue growth reaccelerating as the company’s enterprise clients reengage their spending.

“Over the past few years, management has been building the foundation of an organization that can grow into a billion-dollar ARR company. We believe that job is not yet complete. The Company is building the tools that can win enterprise-level deals. We do not expect immediate results from these changes, however, and we expect the Company to be well positioned to support further growth in the next few years, especially as conditions improve,” he said.

Stock: E Automotive (E Automotive Stock Quote, Charts, News, Analysts, Financials TSX:EINC)

ATB Rating: Outperform

Target Price: $12.50

Projected 12-month return: 220.5 per cent

Auto retail platform E Automotive had a rough 2022, as difficult market conditions in the auto sector combined with high losses for the company, resulting in quarterly analysts’ misses on earnings and the company reporting losses while trying to pursue growth. 

But investors can expect better this year, Toner said, as wholesale volumes should recover and the company should gain traction in digital auctions in new US regions.

“At the current market capitalization, we believe the underlying strength and profitability of the Canadian business and the significant opportunity in the US is heavily discounted,” Toner wrote.

Stock: Kinaxis (Kinaxis Stock Quote, Charts, News, Analysts, Financials TSX:KXS)

ATB Rating: Outperform

Target Price: $200.00

Projected 12-month return: 29.3 per cent

Toner said supply chain management company Kinaxis raised its guidance in each of the first three quarters of 2022 and has some of the best fundamental momentum in tech, with modernization in the supply chain space remaining a high priority. Investors can expect currency to be a tailwind for KXS in 2023, while the company is expected to deliver more updates on its expansion into new verticals like energy.

“We believe that the momentum can continue into 2023. The changing business model is increasing the Company’s total addressable market (TAM). Kinaxis believes there are 19,000 potential customers, while the Company had ~200 customers exiting Q3/22,” he said.

Stock: Lightspeed Commerce (Lightspeed Commerce Stock Quote, Charts, News, Analysts, Financials TSX:LSPD)

ATB Rating: Outperform

Target Price: $60.00

Projected 12-month return: 208.8 per cent

Montreal-based e-commerce platform Lightspeed had a particularly tough time over the past five quarters, after starting out as a public company with lots of momentum and promise. The pullback on e-commerce names has been severe, and LSPD is down about 88 per cent from its highs in September 2021. 

Toner said a number of operational and communication issues helped to push down the stock but that management’s focus on larger merchants is bearing fruit. He said investors will want to watch for new product innovation, growth in the company’s gross transaction volume and the Lightspeed B2B network contributing to location growth.

“Our estimates are for a three-year gross profit CAGR of 23.5%. We believe a number of growth levers can help Lightspeed exceed those estimates.

Stock: mCloud Technologies (mCloud Technologies Stock Quote, Charts, News, Analysts, Financials TSX:MCLD)

ATB Rating: Outperform

Target Price: $3.00

Projected 12-month return: 150.0 per cent

Critical energy infrastructure management company mCloud had a “very difficult year” in 2022, according to Toner, with the company losing a significant portion of its customer and revenue base. But after some recent customer wins and a new partnership with Google’s Cloud platform, Toner said investors can expect better days ahead for mCloud.

On the Google partnership, Toner said it promises to “bring new customers and improve the business model by lowering sales and marketing expenses.”

Stock: Real Matters (Real Matters Stock Quote, Charts, News, Analysts, Financials TSX:REAL)

ATB Rating: Outperform

Target Price: $8.00

Projected 12-month return: 94.6 per cent

One industry that got hit hard in 2022 was housing, with mortgage rates shooting up and homebuilder confidence at a multi-year low. That left a mark on Real Matters, a software and services platform for the mortgage lending and insurance industries, with Toner noting that as the markets deteriorated, the company went into capital preservation mode, reduced operating expenses. Management expects to end the year with a revenue run rate cut in half. 

Toner said 2023 is likely to be another difficult one for both the refinance and purchase markets, but he’s keeping an “Outperform” rating on REAL.

“Market share losses by its customers limited overall share gains for Real Matters. REAL continues to perform well compared to other vendors, and it is growing share of its existing customers and winning new lenders. Several large lenders with which Real Matters has significant share lost market share, a negative for Real Matters. We do not expect this to continue, but it is a trend we are watching,” Toner said.

Stock: Shopify (Shopify Stock Quote, Charts, News, Analysts, Financials TSX:SHOP)

ATB Rating: Outperform

Target Price: $75.00

Projected 12-month return: 53.7 per cent

Shopify’s plunge starting November 2021 has been well-publicized, where the stock was a top-performer in 2021 but among the worst in 2022, experiencing a 74.5 per cent decline this past year. Toner said weaker-than-expected e-commerce sales, the company’s exposure to categories that were more affected by COVID-19 and the subsequent reopening of bricks and mortar were mostly to blame for SHOP’s troubles, along with inflation’s impact on the discretionary products industry. 

But there’s a rebound in the making for e-commerce, Toner says, and that’ll look good on Shopify.

“We believe that there is plenty of secular growth left in e-commerce sales, and we believe the toughest comps and the reopening headwind will be behind the Company in 2023,” Toner said.

“We expect Shopify to become a share gainer again: Pre-pandemic, Shopify’s GMV and revenue growth were outpacing e-commerce growth significantly. We believe e-commerce will return to being a secular growth market and that Shopify’s status as a share gainer will be re-established,” he said.

Stock: Softchoice (Softchoice Stock Quote, Charts, News, Analysts, Financials TSX:SFTC)

ATB Rating: Outperform

Target Price: $27.00

Projected 12-month return: 47.2 per cent

Softchoice also got the nod from ATB Capital, with Toner saying the IT solutions provider has executed relatively well since its IPO, even as management has reduced its guidance three times now. Look for SFTC to deliver gross profit beats in 2023 and continued growth in its cloud computing business.

“While Softchoice’s business should have operating leverage with revenue growth at high-single-digit percentages, the Company has aggressively reinvested in building the organization to support further growth. The migration to the cloud continues to be one of the most robust growth trends in technology, and we believe Softchoice remains well positioned to benefit,” Toner said.

Stock: Thinkific Labs (Thinkific Labs Stock Quote, Charts, News, Analysts, Financials TSX:THNC)

ATB Rating: Outperform

Target Price: $6.50

Projected 12-month return: 257.1 per cent

Finally, Toner likes online learning marketplace Thinkific Labs, saying an evolving clientele has impacted THNC’s path going forward. Look for the company to show further expense discipline and lower losses along with new product innovation and average revenue per user growth in the new year, Toner said.

“The changing nature of Thinkific’s customer, from offline businesses looking for a quick online solution to Creators leveraging Thinkific’s platform to monetize their skills or related online businesses is disrupting Thinkific’s growth story and forcing a different approach,” Toner wrote.

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About The Author /

Jayson is a writer, researcher and educator with a PhD in political philosophy from the University of Ottawa. His interests range from bioethics and innovations in the health sciences to governance, social justice and the history of ideas.
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