Warren Buffett always says you should stick within your circle of competence when it comes to investments. The man has shied away from the tech sector for most of his career but has since adapted to gain a better understanding of the fast-moving field that I consider vital for investors who desire to do better than the market averages over time.
As a tech-savvy millennial, the tech sector likely lies right in the middle of your circle of competence, and you should seek to double-down on the tech titans that you believe in.
Such hyper-growth tech stocks tend to be more volatile, but fortunately for young investors, their ability to take on such perceived risk is higher than that of older investors.
Fortunately for Canadian millennials who’ve flocked south for their tech exposure, there’s been a slew of promising up-and-coming tech players that are not only comparable to the players on Silicon Valley, but may also be better investments given their lower visibility to foreign investors.
Canadian tech darlings like Shopify came from nowhere and is now a household name that our U.S. neighbours can’t stop talking about. This piece will look into two TSX-traded tech stocks that you may want to own for your TFSA for the long haul.
Constellation Software
Constellation Software (TSX:CSU) has been steadily crushing the market averages over the years while exhibiting minimal volatility relative to the broader markets.
I like to think of Constellation as a scaled-up venture capitalist (VC) firm. The company has excellent managers that have found a way to post outsized returns over time by placing bets on start-up software firms within the private and public sectors.
The results really speak for themselves, and with many brilliant managers still doing what they do best, I see Constellation as a continued outperformer for many years, if not decades, as the company discovers and boosts promising tech darlings across Canada’s Silicon Valley.
With Constellation, you don’t need to burn the midnight oil and take on more risk than you can handle with microcap stocks. You get a reliable management team who’s looking for the next big thing in the software space.
They can mitigate risk like few others in the field, so when it comes to Constellation, it’s as simple as buying the name for your TFSA, holding it and forgetting that you even own the name.
Kinaxis
Software-has-a-service (SaaS) and cloud kings are what’s hot in the fast-moving world of tech these days. While they have fallen of favour over the past year due to recession jitters, they’re worthy bets for those with investment horizons that span decades.
Kinaxis (TSX:KXS) is a Canadian SaaS king that could be on its way to becoming the next Shopify. The firm supplies invaluable cloud-based subscription solutions for firms engaged in the supply chain and various other day-to-day operations.
According to customers, Kinaxis has an industry-leading product that continues to improve over time, and in the third quarter, Kinaxis crushed it on earnings, winning many new high-profile clients.
SaaS revenue growth was impressive in the latest quarter, but what’s even more encouraging is the fact that growth could accelerate much further over the next few years as the product looks to round up clientele and form a moat around it, similar to Shopify.
At the time of writing, Kinaxis trades at 48.3 times next year’s expected earnings, 8.23 times book, and 10.6 times sales, which seems expensive, but is actually justifiable when you consider the nearly 20% in annualized top-line growth posted over the last few years and the potential for SaaS revenues to pop further.
Stay hungry. Stay Foolish.
