JMRD Market Observer for September 30th, 2016: Initiation Coverage of the Canadian Technology SectorSeptember 30, 2016
In This Week’s JMRD Market Observer
- Technology: Initiating Coverage
- JMRD Basket Corner
- Week at a Glance
- Retirement Corner
- Reads of the Week
- Economic Calendar
- Earnings Report
Technology: Initiating Coverage
After a brief break, NBF has re-initiated coverage on the Canadian Technology sector. The full ratings and target prices are noted in the attached report with our favoured names being Altus Group, CGI, Kinaxis, Mitel and OpenText. CGI Group, Constellation Software and OpenText are held in JMRD’s baskets.
- Canadian Tech Offers More Than You Might Think. When it comes to the TSX Composite Index, the hard reality is that tech is a small contributor – around 2.5%. Yet, as small as that contribution may be, the technology names within the Index have had some impressive returns. If we look at the combined returns over the past 10 years for a staple grouping of tech names like Constellation Software, CGI and OpenText, collectively, that group has seen their stock prices increase 1,488% on average (CAGR 31%)! But what’s even more interesting is that the collective TSX Information Technology Index has had equally impressive outperformance relative to the broad Index, more than doubling the return of the TSX Composite in the past five years. If that weren’t enough to get you interested in this group, we also see a new crop of growth names (Kinaxis, Shopify, etc.) and existing legacy names (CGI, OpenText, etc.) that are pivoting their businesses for accelerated growth. In our view, we think that all bodes well for this entire group.
- Another Renaissance Is Coming in Technology. Over our many years covering tech, we’ve seen our share of themes. Where smartphones once dominated the tech investing landscape, it’s been replaced with Cloud and their recurring revenues that hold the promise of more value. No doubt, that theme has translated into meaningful returns for investors globally – and in Canada. Going forward, we think there are many brewing themes that will provide similar investing opportunities and it’s our plan to bring some of those ideas to you. This report provides investors with our current view on the sector. We cover issues like: How Canadian tech looks relative to the global group? Why growth may be a bargain in Canada? What valuations look like today? And, a lot more. As always, if you have any questions on our analysis / data, feel free to reach out to us. Full article attached.
JMRD Basket Corner
U.S. Growth Basket
Boston Scientific (BSX) – Medical-devices company Boston Scientific Corp. on Tuesday said it agreed to buy EndoChoice Holdings Inc. for roughly $210 million, expanding its endoscopy business as sales of some products have slowed. Boston Scientific said it would pay $8 a share in cash for EndoChoice, a 90% premium to its closing price of $4.22 a share on Monday. Boston Scientific, based in Marlborough, Mass., has diversified its product offerings in recent years to help pad softening sales in some bread-and-butter areas, such as pacemakers and implanted defibrillators. In July, the company raised its earnings outlook amid better-than-expected revenue. In its endoscopy business, which EndoChoice will become part of, sales rose 11% in the June quarter to $361 million.
Week at a Glance
See Week at a Glance attachment.
- “How to Retire at 40” (Bloomberg)
- “Mom and Dad place their bets on property for adult children” (Globe and Mail)
Reads of the Week
- “The Mystery of A Massive Junk-Bond Short” (Bloomberg)
- “The Difference Between a Bubble and a Cycle” (Collaborative Fund)
- “Bullish news from Wall Street’s bearish seers” (Bloomberg)
- “CostCo Must Do More to Battle Amazon” (Wall Street Journal)
- “Where Ignorance is Bliss” (Pension Partners) What you gain when you stop reading the news
- “BlackBerry Stops Making Phones” (Bloomberg)
- “Amazon’s Newest Ambition” Competing Directly with UPS and FedEx” (Wall Street Journal)
Monday October 3rd – U.S. ISM Manufacturing PMI
Tuesday October 4th – None
Wednesday October 5th – Canadian Trade Balance, U.S. ADP Nonfarm Employment Change, U.S. ISM Non-Manufacturing PMI
Thursday October 6th – Canadian Building Permits
Friday October 7th – Canadian Employment Change, Canadian Ivey PMI, U.S. Unemployment Rate, U.S. Nonfarm Payrolls,
Monday October 3rd – None
Tuesday October 4th – None
Wednesday October 5th – Jean Coutu Group
Thursday October 6th – Sandvine
Friday October 7th – None
Have a good weekend!
Categorised in: JMRD Updates