3 Tech Darlings to Scratch Your Growth and Value Itch

CGI Group (TSX:GIB.A) and two other tech-value stocks that could double in 3 years.

| More on:

I’d imagine that when most investors hear of tech stocks, they immediately think of rapidly-growing companies with mediocre profitability numbers and out-of-this-world valuations. While this is true in many cases, especially with the high-flying names you hear the talking heads on TV discussing ad nauseum, there’s a certain basket of “value” tech stocks that have mostly fallen out of favour with the average growth investor.

At a certain point in a growth company’s lifecycle, the top line growth numbers begin to decelerate, and the valuation metrics come down to earth, as the stock crosses the line between growth and value. Now, some investors out there describe themselves as either growth- or value-oriented. The two seemingly polar opposite investment styles, however, are not mutually exclusive. In fact, they may be better suited for a wider audience of investors, as they’ll cater to both the growth and value-oriented.

It’s the stocks that have fallen out of favour that I believe may be the most misunderstood, potentially paving the way for a discrepancy between a stock’s market value and its intrinsic value. These are the types of tech stocks that Warren Buffett has been betting on of late, after decades of shunning the entire industry in favour of easier-to-understand businesses.

Without further ado, consider the following three Buffett-style value tech stocks that I believe have plenty of gas left in the growth tank:

CGI Group (TSX:GIB.A)

If there’s a tech stock you can consider unsexy, CGI Group is probably at or around the top of the list. For those unfamiliar with the name, the company is engaged in global IT consulting, systems integration, outsourcing, and the like.

While the company definitely isn’t on the cutting edge of game-changing next generation tech that’ll disrupt your world, the company is continuing to pull in impressive amounts of cash, and despite being a fairly old company that most investors have moved on from, the company still posts some pretty impressive growth numbers.

The stock has slowly and steadily soared over 150% over the last five years, and despite being a tech play, the company has endured minimal amounts of volatility during its steady bull run.

Constellation Software (TSX:CSU)

For those looking for a bit more growth and some instant diversification in the world of tech, Constellation is the horse to bet on. The company’s talented management team is always on the lookout for the next big up-and-comer with cash on hand to pursue M&A opportunities.

You can think of Constellation as a massive-scale venture capitalist (VC) firm with an emphasis on Canadian technology firms, as a handful of the acquisitions made by Constellation are well below the $5 million mark.

As you may know, small up-and-coming tech plays have the potential for massive growth, but they’re considerably more risky, especially for those with no background in VC. If you’re at all enticed by the tech-based ventures on shows like Shark Tank, Constellation is a solid bet because you’re getting exceptional stewards who know how to track down “moonshot” opportunities across the nation. The result? Astoundingly high double-digit ROE numbers (43.8% for TTM), and enhanced investor returns (314% over the past five years).

Tucows (TSX:TC)(NASDAQ:TCX)

The oddly-named company is a rare gem that’s buried in the TSX. The IT services company is the second-largest provider of domain registrar services, a stable utility-like business, and although the company may be seen as boring, Tucows has a few tricks up its sleeve to fuel safe, sustainable growth.

The stock has soared 50% since the depths of November 2018, a time that I was pounding the table (I did so several times) on the company that I believed was unsustainably undervalued.

You see, Tucows’ main IT service business isn’t too attractive for the growth-oriented investors, but when you consider the growth potential behind Ting (Tucows’ rapidly growing telecom subsidiary) and the “safety net” of the domain business, you get the perfect cocktail of both growth and value.

Although the stock has been one of the hottest names over the past few months, I still think the stock is worthy of your investor dollars, even more so on a market-wide pullback.

Stay hungry. Stay Foolish.

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.

Fool contributor Joey Frenette has no position in any of the stocks mentioned. Tom Gardner owns shares of Tucows. The Motley Fool owns shares of Tucows and TUCOWS INC. CGI and Tucows and recommendations of Stock Advisor Canada.

More on Tech Stocks

think thought consider
Tech Stocks

Is CGI Stock a Buy Even With No Dividend Yield?

CGI stock may not have a dividend to speak of. But does that necessarily mean you should ignore this top…

Read more »

A robotic hand interacting with a visual AI touchscreen display.
Tech Stocks

Why Now Is the Time to Invest in Canadian AI Stocks

Are you looking for one of the most solid Canadian AI stocks out there? This one is probably your best…

Read more »

The letters AI glowing on a circuit board processor.
Tech Stocks

Why AI Stocks Should Be in Every Canadian Investor’s Portfolio

AI stocks continue to be one of the best options out there for long-term investing, especially when considering Canadian options.

Read more »

money goes up and down in balance
Tech Stocks

1 “Magnificent 7” Stock I’d Buy Over Nvidia Right Now

Here's why Meta Platforms stock is a better choice for Canadian investors compared to Nvidia in November 2024.

Read more »

A data center engineer works on a laptop at a server farm.
Tech Stocks

3 No-Brainer Data Centre Stocks to Buy With $500 Right Now

Data centres are going to be a huge growth opportunity in the next decade. And these are the top buys.

Read more »

The virtual button with the letters AI in a circle hovering above a keyboard, about to be clicked by a cursor.
Tech Stocks

Is OpenText Stock a Buy, Sell, or Hold for 2025?

OpenText stock has fallen in the last few years, but that could mean this top tech stock remains an undervalued…

Read more »

AI microchip
Tech Stocks

Celestica Stock: Buy, Sell, or Hold?

Celestica's stock price has rallied 950% in the last five years. Will the AI boom send it even higher in…

Read more »

data analyze research
Tech Stocks

2 Ridiculously Cheap Growth Stocks to Buy Hand Over Fist in 2024

Well Health Technologies is a cheap growth stock to buy for its record-breaking results, massive revenue growth, and profitability.

Read more »