If This Tech Stock Crashes, Buy it! | The Motley Fool Canada – The Motley Fool Canada
Constellation Software (TSX:CSU) is one of the best-performing stocks in Canadian history. Since 2006, shares have exploded higher by more than 6,000%. The S&P/TSX Composite Index, meanwhile, gained just 45%.
At any time over the last 14 years, this stock would have been a major buy. But that hasn’t stopped it from going on sale every now and then. These corrections are incredibly rare. In 2016, shares fell 20%, only to recover in a matter of weeks. The stock dipped by 20% again in late 2018, only to surge more than 50% throughout 2019.
This stock is simply special. Don’t miss your opportunity if it presents itself in 2020.
This is what’s so special
Constellation is a boring company. Just take a look at how it describes itself.
“Constellation Software is a leading provider of software and services to a select group of public and private sector markets,” its website states. “We acquire, manage and build industry specific software businesses which provide specialized, mission-critical software solutions that address the particular needs of our customers.”
Boring, right? Not exactly. By digging into those sentences, we can get a glimpse of what makes this stock so special.
As it describes, Constellation is a software company. Notice it doesn’t stress that it develops software but instead acquires it. This is core to its strategy.
Founded by a former venture capitalist, Constellation is essentially a vehicle that buys out niche software companies. You’ve likely never heard of any of these companies. They’re often incredibly small, serving narrow purposes. Constellation is usually one of the only interested buyers, providing them with attractive deal prices. It then plugs the acquired software into its larger portfolio, lowering maintenance and customer-acquisition costs.
Apart from specialization, Constellation also provides mission-critical solutions. Again, this is core to its strategy. Specialization means that there often aren’t any competing products to turn to, but the fact that this software is also mission-critical means customers can’t switch, even if they wanted to. Trying to cut costs by eliminating a critical part of your business isn’t a great long-term solution.
In combination, these factors provide Constellation with a stable and expanding high-margin, recurring sales base. It’s simply rinse and repeat year after year.
When to buy
By now, the market has caught onto Constellation’s valuable business model. Management recently suspended quarterly conference calls so that they don’t tip off competitors to potential deals. But even great stocks show volatility.
Constellation stock currently trades at 6.4 times sales, close to its five-year high of 6.8 times sales. In 2019, when shares last when on sale, it briefly traded close to four times sales. During the 2016 pullback, shares also bottomed around four times sales.
Don’t be surprised to see this stock never go on sale again, but like any investment, anything’s impossible. If shares move under five times sales in 2020, strongly consider picking up shares.
This tiny TSX stock could be the next Shopify
One little-known Canadian IPO has doubled in value in a matter of months, and renowned Canadian stock picker Iain Butler sees a potential millionaire-maker in waiting…
Because he thinks this fast-growing company looks a lot like Shopify, a stock Iain officially recommended 3 years ago – before it skyrocketed by 1,211%!
Iain and his team just published a detailed report on this tiny TSX stock. Find out how you can access the NEXT Shopify today!
The Motley Fool owns shares of and recommends Constellation Software. Fool contributor Ryan Vanzo has no position in any stocks mentioned.
Maritime gas prices – CTV News Atlantic
For the most part, drivers in the Maritimes are paying slightly less for gas Friday, but the cost of diesel is up.
In mainland Nova Scotia, gas is down three cents to a minimum price of 152.9 cents per litre.
In Cape Breton, motorists are now paying a minimum price of 154.8 cents per litre for regular self-serve gasoline.
Diesel increased 2.5 cents, the minimum price is now 137.7 cents per litre.
The minimum price for diesel in Cape Breton is now 139.6 cents per litre.
PRINCE EDWARD ISLAND
On Prince Edward Island, gas increased 1.1. cents, the minimum price is now 165.6 cents per litre.
Diesel on the island increased 1.5 cents, the minimum price is now 157.5 cents.
Meanwhile, in New Brunswick, gas is down 2.4 cents, the maximum price is now 164.6 cents per litre.
Diesel is up slightly to 0.6 cents, the maximum price is now 158.6 cents a litre.
NL Unemployment Rate Slightly Rises – VOCM
Statistics Canada says the unemployment rate rose to 5.2 per cent in May, marking the first increase since August 2022.
The rate for Newfoundland and Labrador rose slightly to 10.2 per cent from 10.1. In metro, the jobless rate in May hit 5 per cent, a slight increase from the 4.9 recorded in April.
The job report comes two days after the Bank of Canada raised its key interest rate by a quarter of a percentage point, citing concerns about a string of hot economic data, including low unemployment.
May jobs numbers not enough to change Bank of Canada’s course: Experts
Canada’s labour market showed minor signs of softening in May, but economists and other experts said the Bank of Canada likely wouldn’t read the numbers as a sign that its rate-tightening campaign aimed at bringing down inflation is working.
Unemployment rose to 5.2 per cent from five per cent, the first increase since last August, according to the Statistics Canada Labour Force Survey for May.
The numbers released Friday said the economy lost 17,000, though employment overall was little changed.
Randall Bartlett, senior director of Canadian economics at Desjardins, cautioned that job losses were concentrated among the youngest workers in Canada as they enter the summer jobs season, and “not necessarily characteristic of what we’re seeing in the underlying labour market.” He said the job losses can’t yet be seen as a “trend.”
“We need to see how this shakes out in the months ahead, and then we’ll decide what it means for monetary policy,” Bartlett told BNN Bloomberg in a television interview.
Dominique Lapointe with Manulife Investment Management noted “small loss” mostly among the younger age group of workers should be interpreted with caution, as seasonal adjustments can be challenging for that demographic. He also pointed out that employment rose among core-aged workers.
WHAT DOES IT MEAN FOR THE BANK OF CANADA?
The jobs numbers came days after the Bank of Canada resumed its interest rate tightening cycle, hiking its key rate by a quarter of a percentage point to 4.75 per cent after a string of unexpectedly hot economic data.
Lapointe said he is expecting another rate hike next month based on recent inflation and GDP readings. He said the jobs numbers aren’t significant enough to change the central bank’s path.
“I don’t think this morning’s (Labour Force Report) report would change what’s going to happen in July. We’d probably need to see way more weakness in other economic indicators before the next meeting for them to change their course,” he said.
Jay Zhao-Murray, FX Analyst at Monex Canada, noted that the data that went against economists’ expectations for job gains in May, but agreed that the numbers wouldn’t shift the central bank’s thinking.
“With employment cooling on the whole, this latest report does weaken the case for further hikes from the Bank of Canada, but given the details and composition of employment changes, we do not think it would materially change the Bank’s latest view on the economy,” he said in a written statement.
He said he is expecting another 25-basis-point rate hike from the Bank of Canada in July, “unless the subsequent data also confirm the negative signal from today’s report.”
Economist Tuan Nguyen of RSM Canada, meanwhile, said “there are reasons to believe that May’s decline in net jobs is not a fluke,” given that most of the job losses were in business, professional services, and trades.
Taken with an uptick in the unemployment rate, he pointed to signs that “a long-awaited softening of the labor market has finally arrived.”
“Following Friday’s job data, the Bank of Canada’s decision to hike the rate to 4.75 per cent … might be the last one in this cycle. Nevertheless, we continue to believe that rates should remain at that level at least until the end of the year to ensure substantial easing of inflation,” Nguyen said in a written statement.
Wages, which the Bank of Canada has zeroed in on as a particular concern in its inflation fight, rose 5.1 per cent year-over-year in May.
Bartlett made the case that wage growth in Canada is more “subdued” than it might appear.
He noted that StatsCan’s monthly wage reading is one of several wage indicators that the Bank of Canada looks at, and others appear to be decelerating more quickly, meaning that “wages are not the concern we had anticipated” when it comes to the possibility of a “wage-price spiral” some economists fear could push inflation higher.
Regardless, Bartlett said he expects the Bank of Canada will interpret the labour force reading as a sign that Canada’s labour market remains “very tight.”
“It needs to see the unemployment rate move meaningfully higher (and) the job vacancy rate move meaningfully lower in order to be able to see wage growth come down to a level that’s consistent with two per cent inflation,” he said.
CONSUMER SPENDING CLUES
As for the sectors where people lost jobs in May, Bartlett said the data holds clues that Canadians are still spending money despite the high-interest rate environment.
“It’s not necessarily in sectors where you would think tight monetary policy and higher interest rates would be leading to job losses,” Bartlett said.
Accommodation, food services, arts and recreation were not hit particularly hard with losses, but those are areas where people generally cut back on spending in tough economic times, Bartlett said.
“We may see the consumer continue to be relatively healthy in the second quarter, and it may be maybe pointing to that still,” he said.
Interest rate hikes and how they'll affect Canadians: This week's top real estate stories – The Globe and Mail
Unmarked graves: Lawmakers should act now, Murray says – CTV News
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