Selective Asset Management President Robert McWhirter thinks the earnings growth of Canadian tech names will exceed that of the average TSX-listed company in 2015, and at “reasonable” PE multiples. In an interview with Small Cap Power at last week’s Cantech 2015 Investment Conference, Mr. McWhirter revealed six stocks that he likes at this time, including one (V.ZMS) that he and his family have a “significant” position in that could have a big announcement coming in March of this year.
Narrator: The Small Cap Power Expert Interview featuring Robert McWhirter.
SmallCapPower: Welcome back, Bob. What’s your outlook for the tech sector in 2015?
Bob: We are quite positive on tech stocks. They’re obviously growth oriented. The current forecast for the outlook for 2015 for the TSX overall earnings is a very modest 3%. We think tech stocks in general will end up doing much better than 3% earnings growth at reasonable PE multiples for 2015.
SmallCapPower: What factors do you think will influence the tech sector in 2015?
Bob: Oh I think the overall kind of background for tech stocks is quite positive. The Internet penetration around the world continues to grow. In part, because of the increase in video streaming for companies like YouTube. That then provides opportunities for increased need for faster networks, which is a benefit to a Canadian company, Evertz Technologies (TSX:ET), which is at the forefront of the shift to 100-gig networks.
There’s also an increase in digital advertising. The e-commerce shift at only 6% currently of all retail is done on an e-commerce basis, we think that will continue. And also a need for increased cyber security. We think that provides an opportunity for Absolute Software (TSX:ABT) as well as Route1 Inc. (TSXV:ROI), which I own personally. And on the overall security side, NanoTech Security Corp. (TSXV:NTS) which provides security for banknotes. We think it’s finally going to have a decent opportunity in 2015.
SmallCapPower: Is there one next big thing in technology that investors can profit from?
Bob: Well, the next big thing obviously, I shouldn’t say obviously, is the Internet of Things, which all things being connected. I think it’s difficult to find one company that’s reasonably priced that provides an opportunity there. I think you’re better off to end up saying it’s more of what’s going on now, which is the existing explosion of video and the increased demand for network speeds, fat pipes, again playing into the strengths of Evertz Technologies (TSX:ET).
SmallCapPower: What factors do you consider when deciding whether or not to sell a particular tech stock?
Bob: Well, part of it is overall valuations. So as an example, you recently saw Sierra Wireless(TSX:SW) involved in the Internet of Things. One of the analysts concurred with my view about a week and a half ago, which was that the stock appears to be expensive. From recollection, it’s trading about 17 times enterprise value to EBITDA based on 2015 estimates. So very much like real estate, it becomes one of, “I like your house. I’m just not sure about the short term asking price for your house.” There’s a value for everything and some stocks get stretched either on a price to sales basis or more important, a price to earnings and/or EBITDA basis.
SmallCapPower: In the past you’ve mentioned FLYHT (TSXV:FLY) and Avigilon (TSX: AVO). What tech stocks do you currently like?
Bob: FLYHT continues to end up providing an opportunity. If they’re Chinese customers can end up ordering more of their product, it’s a great recurring revenue story. On Avigilon side, the need for security surveillance continues. The stock appears to be reasonably priced if they can end up delivering the numbers that analysts are expecting going forward. The stock appears cheap.
Stocks that I like at the moment are Zecotek Photonics(TSXV:ZMS), which has settled their lawsuit with Phillips and Saint-Gobain. We think that provides an opportunity on the PET medical scanner side. And also on December 1st, there was a press release from Zecotek that suggested they’re expecting by the end of March of this year, a potential order from CERN. And the CFO Michael Minder was presenting at the conference today, he for the first time has suggested over the next three to four years, CERN looks like there’s a demand or might have a demand for up to a quarter billion dollars worth of the two products that Zecotek sells.
Again no certainty that CERN is going to end up ordering Zecotek’s product. But remember about a year and a half ago, CERN came to the conclusion that Zecotek products were the only ones in the world that basically could end up satisfying their needs. Hence the deal that Zecotek has struck with Hamamatsu Photonics out of Japan. We thinks it’s a very positive opportunity, expecting news by the end of March.
SmallCapPower: Thanks for taking the time for today’s interview.
Bob: You’re very welcome, thank you.
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