Here’s Why You Might Want to Get Out of Stocks Like Saputo (TSX:SAP) Right Now

Food stocks like Saputo Inc. (TSX:SAP) are not looking all that solid since USMCA. Could Canadian tech become the better industry?

| More on:

You’re reading a free article with opinions that may differ from The Motley Fool’s premium investing services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

So long NAFTA; it was nice knowing you. Now that USMCA is the beat that the TSX must dance to, how are food — and especially dairy — stocks looking for domestic investors? Below, we’ll go through some data for a favourite dairy stock and see how it compares to a very different stock from a very different industry. Could it be that Canadian tech is finally becoming a hunting ground for value investors?

Saputo (TSX:SAP)

A market cap of $15 billion is one of the strongest reasons to own this stock. It’s about as defensive as food stocks go (though, of course, few such stocks come close to the likes of Nutrien). Saputo’s P/E of 19.6 times earnings is far from terrible, though it exceeds both market and industry averages, as do its PEG and P/B ratios.

A one-year past earnings growth of 3.5% matches exactly the industry average of for the same period, though it does trail its own five-year average past earnings growth of 10.8%. A dividend yield of 1.68% probably isn’t enough to satisfy most investors’ appetites, while a debt level of 58.5% of net worth could definitely be lower for a souring food stock.

Open Text (TSX:OTEX)(NASDAQ:OTEX)

This FAANG-alike stock seems an odd choice to put up against Saputo, but the reasoning for it is that Canadian tech might be swinging around to claim new territory, just as traditional sectors such as food are beginning to lose out. A market cap of $10 billion easily beats Saputo and pegs this popular stock as a strong defensive play out of sheer size.

The industry’s average of 13.5% for the same earnings period can’t beat Open Text’s five-year average past earnings growth of 22.9%. Sadly, neither can Open Text: a one-year past earnings growth of -76.4% is where this stock starts to look like its tech bedfellows.

Discounted by 49% of its future cash flow value, Open Text seems, on the face of it, undervalued. It is and it isn’t: a P/E of 39.8 times earnings is good value for a Canadian software stock, though obviously it signals clear overvaluation compared with the market. A PEG of 2.6 times growth counts this one out for fans of both growth and value, though asset-focused investors should be aware that Open Text’s P/B of 2.6 times book beats the average for the industry.

A 15.6% expected annual growth in earnings over the next one to three years makes this a better stock than Saputo for outlook, though. A dividend yield of 1.69% beats Saputo’s by the merest of margins, and even its level of debt of 70.5% of net worth is similar. A fair amount of inside selling in Open Text is not a good sign and signals that confidence in the company among insiders could be low, but time will tell.

Go for competitors such as Microsoft, Alphabet, or Siemens if you want to add some U.S. tech stocks to your portfolio, or simply give their figures a look over if you want to see what comparative value looks like in that sector.

The bottom line

Saputo seemed like a decent stock before the events of the summer, but now looks decidedly dicey next to the tech pick. Open Text is one of Canada’s most convincing answers to the American FAANG stocks that have been weighing down the NASDAQ of late on the back of a Chinese slowdown, so go for it if you want that value, plus some passive income and a bit of growth. Meanwhile, the dairy industry itself may be safe for the time being, but its stocks are definitely going a little sour.

Should you invest $1,000 in Royal Bank of Canada right now?

Before you buy stock in Royal Bank of Canada, consider this:

The Motley Fool Stock Advisor Canada analyst team just identified what they believe are the Top Stocks for 2025 and Beyond for investors to buy now… and Royal Bank of Canada wasn’t one of them. The Top Stocks that made the cut could potentially produce monster returns in the coming years.

Consider MercadoLibre, which we first recommended on January 8, 2014 ... if you invested $1,000 in the “eBay of Latin America” at the time of our recommendation, you’d have $20,697.16!*

Stock Advisor Canada provides investors with an easy-to-follow blueprint for success, including guidance on building a portfolio, regular updates from analysts, and two new stock picks each month – one from Canada and one from the U.S. The Stock Advisor Canada service has outperformed the return of S&P/TSX Composite Index by 29 percentage points since 2013*.

See the Top Stocks * Returns as of 3/20/25

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. Teresa Kersten is an employee of LinkedIn and is a member of The Motley Fool’s board of directors. LinkedIn is owned by Microsoft. Fool contributor vhetherington has no position in any of the stocks mentioned. David Gardner owns shares of Alphabet (A shares) and Alphabet (C shares). Tom Gardner owns shares of Alphabet (A shares) and Alphabet (C shares). The Motley Fool owns shares of Alphabet (A shares), Alphabet (C shares), and Open Text. Nutrien, Open Text, and Saputo are recommendations of Stock Advisor Canada.

Confidently Navigate Market Volatility: Claim Your Free Report!

Feeling uneasy about the ups and downs of the stock market lately? You’re not alone. At The Motley Fool Canada, we get it — and we’re here to help. We’ve crafted an essential guide designed to help you through these uncertain times: "5-Step Checklist: How to Prepare Your Portfolio for Volatility."

Don't miss out on this opportunity for peace of mind. Just click below to learn how to receive your complimentary report today!

Get Our Free Report Today

More on Dividend Stocks

Dividend Stocks

3 Canadian REIT Stocks to Buy and Hold for the Next Quarter-Century

These three Canadian REITs trade cheaply and are highly reliable, making them some of the best stocks you can buy…

Read more »

A train passes Morant's curve in Banff National Park in the Canadian Rockies.
Dividend Stocks

1 Practically Perfect Canadian Stock Down 24% to Buy Now and Hold for Life!

CNR stock is a top Canadian stock for investors, especially with shares down on the TSX today.

Read more »

Canada national flag waving in wind on clear day
Dividend Stocks

The Best Canadian Stocks to Buy Right Away With $30,000

If you have $30,000 you're willing to invest, these are some of the first Canadian stocks to consider on your…

Read more »

rail train
Dividend Stocks

What to Know About Canadian Pacific Railway Stock for 2025

CP stock has now gone through a major merger, so what do investors have to look forward to?

Read more »

ways to boost income
Dividend Stocks

Top Canadian Value Stocks I’d Buy for Dividend Growth and Appreciation

If you are looking for income and capital appreciation, here are three Canadian value stocks for a great total return…

Read more »

coins jump into piggy bank
Dividend Stocks

The Smartest Canadian Stock to Buy With $2,000 Right Now

The company’s powerful combination of growth, income, and value, positions it well to deliver solid returns, making it a smart…

Read more »

Transparent umbrella under heavy rain against water drops splash background. Rainy weather concept.
Dividend Stocks

This 10.6 Percent Dividend Stock Pays Cash Every Single Month

Are you looking to invest for a rainy day? This 10.6% dividend stock pays cash every month, irrespective of the…

Read more »

A worker gives a business presentation.
Dividend Stocks

Market Dip: Opportunity or Risk This April?

This market dip might have investors worried, but should they be excited instead?

Read more »