Don't Miss AI's Third Wave
Beginner investors shouldn’t wait around for the perfect time to jump into the financial markets. Undoubtedly, buying the dip sounds nice on paper, and while a correction tends to hit nearly every year on average (we seem to be overdue for one over the coming weeks and months!), they’re not guaranteed to hit according to schedule.
Indeed, we may go longer than the average without so much as a 5% “half” correction, only to be slapped with a bear market plunge (of around 20% from peak to trough) at a later point.
Additionally, some of the more cautiously optimistic investors out there may be bullish enough to keep markets moving higher but not so much higher as to spark a pullback at some point down the road. Indeed, there are plenty of tailwinds to look forward to going into year’s end. Of course, a potential trio of interest rate cuts from the U.S. Federal Reserve (and perhaps a few from the Bank of Canada on this side of the border).
The rise of AI could lay the groundwork for a long-lived bull market in tech stocks
Further, the rise of generative artificial intelligence (AI) is another catalyst that could lift various tech names. Indeed, they’ve been on a hot run, and earnings will need to catch up to the somewhat higher multiples. Whether generative AI gives such companies an earnings boost remains the billion-dollar question.
Either way, beginner investors should focus on investing incrementally over time, with less regard for the market’s rearview mirror. Indeed, what’s up ahead matters most.
Without further ado, consider Constellation Software (TSX:CSU), an $80.5 billion Canadian software titan, as we move into April with strong share price momentum.
Constellation Software
Constellation Software stock may look absurdly expensive, with shares going for nearly $3,800 per share! However, as I mentioned in my recently published piece, CSU stock isn’t actually as pricy as its share price seems (how many stocks go for more than three grand these days?), especially when you consider its strong management and ability to drive earnings at an impressive rate over time.
At writing, shares of CSU go for just shy of 35 times forward price-to-earnings (P/E). That’s more or less fully valued. That said, when you consider the price of admission to many high-tech stocks, I’d argue that CSU may still be undervalued on a relative basis. With such a low beta for a tech stock (0.81 beta at writing), shares seem to be less likely to follow moves made by the broad TSX Index.
Lower betas, higher growth? That’s smart beta investing in a nutshell!
Indeed, I’d love for shares to retreat closer to the $2,800 per share level. Perhaps a market-wide correction could drag shares to such a level. In any case, I wouldn’t sleep on the name, especially as it looks to place strategic bets on emerging startups that are off most of our radars.
Constellation is a venture capital-flavoured tech stock (perhaps one of the best in class), and it deserves a much higher multiple, in my opinion. In short, Constellation has shot for the stars. And with no signs of slowing down, investors may wish to buy incrementally as the firm continues delivering.
