Open Text (OTEX.TO)

(Canada is cheap from a cyclical basis, so his 3 Top Picks are ones that fit that theme and are cheap with good price momentum.) Canada’s largest software company and a leader in management software. A growth through acquisition story. Scores in the top 10% on price momentum. Had a big drop a couple of quarters ago when they warned on earnings, and then went ahead and beat on earnings. They do a very good job of managing growth and earnings expectations. 14% ROE and 20X PE. Dividend yield of 1.68%.

A software company that does all sorts of collaboration customer service software, basically anything interactive to help an organization improve its productivity. They are very big in the Cloud moving all the data into the Cloud and data management, etc. Have beaten earnings estimations in 7 of the last 8 quarters. Strong balance sheet and is trading at 12X earnings. If the world goes into a slowdown, they can use their balance sheet and start picking off companies left right and centre and grow their business that way. Earnings could potentially double over the next number of years. Dividend yield of 1.63%.

Dividend yield of 1.6% and the payout ratio relative to the amount of cash flow they have is quite low, so there is potential they could increase the dividend. However the underlying business isn’t ripping the leather off the ball as far as growth goes, and that is the whole purpose of dividend investing. Earnings are supposed to grow from $4.75 to $4.92, a 4% growth, compared to 13.8% PE, and you end up trying to have a growth rate that is at least above your PE, and that is not happening. In the top 15% of his database, but not a stock on a Buy list.

(Market Call Minute.) Reasonably priced.

An example in the Canadian market where we have something pro-cyclically that is working. It can be a reasonably volatile stock and would be a way you could hedge your portfolio besides having defensives and industrials. Chart shows it has a base rate around $60 and is just breaking out a bit above the trend channel. Earnings have been fantastic.

He got out earlier this year when orders dropped off, and then the stock checked back. Last quarter they reduced estimates and then hit their original numbers anyway so the stock rallied. They continue to grow by acquisitions. The story is holding together quite well so he went back in and bought it.

This had 5 years of solid performance, and then missed 2 quarters in a row back to back. Those investors focused on short-term panicked and sold the stock down. The stock went down 20%-25% and was washed out. It was trading at about 10 or 11 times earnings, but was still the exact same company it was. Last week they came out with a quarter and totally destroyed expectations. The reason was, no one was expecting anything because of the last 2 quarters. Even at 10 or 11 times earnings, it is still profitable and is still a great company. A pretty good tech stock.

Typically, technology stocks do very well right around the end of the year. October to January is the best time to own this. Right now is a time when the stock does not have strong seasonality and has actually been going down. Stay away from this until about the middle of October when the technology sector clicks in once again.

This is a Short for him. It is particularly poor on a price momentum basis. They have missed a few quarters and the stock really hasn’t recovered since then. When a stock has reasonably high valuation, it can be a long way down before there is a floor and buyers step in. He wouldn’t be buying this.

He recently bought it, shortly after it disclosed some problem earnings. He has just gone in and bought the stock as it is a temporary situation. They are making acquisitions in the cloud computing area. It will not go up over night.

Came out with an announcement several weeks ago that the quarter was going to be a bit of a miss and there were going to be some write-downs. Stock corrected really, really fast and now is attractively valued. He trimmed his position a little, but still owns the bulk of it and is just going to ride it out here.

Really fell out of bed not that long ago. Missed expectations 2 quarters in a row. They always struggle with organic revenue growth and he had always hoped that it would really catch on and get a few consistent quarters. Thinks they will deploy a lot of capital on acquisitions and that they are an acquisition target. Would like to see organic growth start to stick, which is going to come through their Cloud business. He is going to wait until the stock shows some kind of a turnaround.

This pulled back on its earnings. They are trying to go more towards Cloud, but there is a lot of competition there and they are kind of a stock with more legacy software systems. While having poor earnings in the short term, they generate a tremendous amount of cash flow from their legacy products. It has been an acquisition machine historically, and have proven to be pretty good operators. If you are looking for a longer-term Hold, this is fine.

He quite likes it. You will always be a slave to the quarterly earnings report. After they underperform for a couple of quarters you want to look at it. He prefers IBM-N, which is bigger and more stable.

CGI Group (GIB.A-T) or Open Text(OTC-T)? Although he owns both, there is no question that he would choose CGI. This trades at around 12X 2015 earnings. For a quality growth company, he really feels that valuation is tough to beat. Also, CGI has been paying down its debt quite readily, so they are primed for an acquisition. If you are looking for a game changing acquisition, it is more likely to come with CGI. It is also cheaper and has a very nice ROE profile.