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Tech Investing: 2 Top TSX Stocks to Buy for Growth and Stability

The Motley Fool logo The Motley Fool 11/6/2020 Victoria Hetherington
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Some tech stocks are more sensitive than others to a vaccine breakthrough. As a key example, there have now been two selloffs in Shopify that coincide with positive announcements by Moderna. Investors should be looking to trim such names ahead of a rollout. Indeed, with the markets now on a post-election hair-trigger, anybody bullish on a vaccine recovery in the stock markets might want to knuckle down.

Look past pandemic growth stocks

However, not all tech stocks are cut from the same cloth, so to speak. Consider some of the “old reliables” as potential money makers in a world recovering from the ravages of the pandemic. Open Text (TSX:OTEX)(NASDAQ:OTEX) and Descartes Systems Group (TSX:DSG)(NASDAQ:DSGX) are prime examples of Canadian names that were around before the wild momentum that has characterized the tech stock space in 2020.

And they’ll likely continue to knock it out of the park in 2021, as well. Let’s examine a few of the reasons why these two tech stocks might satisfy a long-term wealth creation strategy. First of all, Both Open Text and Descartes are focused on optimizing business operations. These are not fancy startups built around faddish trends. Neither are they last-minute IPOs thrown together to tap some ephemeral zeitgeist.

Open Text is well known as a developer and retailer of enterprise information management (EIM) software. The stock is up 9% this week as the markets anticipate an end to the uncertainty that has been roiling the election market. It might be overvalued in terms of earnings, but it has to be said that its most recent quarter was encouraging in this respect. A 1.8% dividend yield rounds out the reasons to buy on a pullback.

Weighing dividend stocks in the tech space

Descartes is a must buy stock for fans of cloud computing. But it’s also a play for infrastructure investing. With its emphasis on logistics and supply chain optimization, Descartes has been hitting the ball out of the park during the pandemic. Up 7.6% this week, Descartes is still too rich for some tastes, though. Investors may want to wait for a selloff before building a position in this name that trades at 5.7 times book.

Indeed, income investors may want to consider Open Text as an alternative. With a high price target of $73, investors may want to look beyond a somewhat rich valuation. A P/B of 2.6 times book could be worse, after all. And with earnings set to grow 26% annually, Open Text may be on the expensive side, but it fits a moderately high-growth thesis.

Additionally, dividend stocks are a classic go-to asset group for long-term investors. If chosen diligently, these types of stocks can provide years of passive income. A truly sleep-easy stock can be hard to find. While some strongly diversified names have low-risk defensive qualities, their yields can be on the low side. On the other end of the spectrum, some rich yields are often bloated by overselling. Open Text fits the former profile, with strong business diversification making up for a slim yield.

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Fool contributor Victoria Hetherington has no position in any of the stocks mentioned. Tom Gardner owns shares of Shopify. The Motley Fool owns shares of and recommends Shopify and Shopify. The Motley Fool recommends Open Text and OPEN TEXT CORP.

The post Tech Investing: 2 Top TSX Stocks to Buy for Growth and Stability appeared first on The Motley Fool Canada.


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