Constellation Software a top pick for this fund manager

First Avenue Investment Counsel Chief Investment Officer Brian Madden told BNN Bloomberg’s Market Watch on Sept. 18 that Constellation Software (Constellation Software Stock Quote, Chart, News, Analysts, Financials TSX:CSU) remains a compelling long-term investment despite being well off its highs.

“It’s been a great growth story, but it is well down from its highs. That’s the beauty of it,” Madden said. “For those who don’t know, this is a fairly large but notoriously tight-lipped and inconspicuous software holding company. And what they do is they acquire vertical market software companies. These are applications niche to a particular industry, like a daycare or a dog kennel or a golf course or something like that.”

He noted that Constellation focuses on mission-critical software acquired largely from founder-led businesses.

“They enable them with best practice services and procurement. But generally speaking, they’re acquiring from mom and pops and founders, and they let them continue to run the business and make decentralized decisions. So it’s a comfortable landing for a lot of these founder types rather than the slash and burn ammo of a private equity firm. As you said, it’s been a great compounder.”

Constellation went public in 2006, and its shares are up more than 32,000% since the IPO. The stock, however, is currently about 20% below its peak.

“We’ve owned this for a long time, about two decades, and history shows us that pullbacks are always and everywhere viable in this name.”

Shares of Constellation have gained 0.08% over the past 12 months and 198.9% over the last five years. On the Street, 10 analysts rate the stock “Buy,” two “Hold,” and none “Sell,” with a consensus price target of US$5,501.

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