Canadian technology stocks continue to outperform (XIT)
As the Canadian market corrected during the last few weeks, some sectors continued to shine and perform very well. One of these is the iShares CDN Tech Sector Index Fund (XIT). In fact, since the major market low on March 9th, 2009 the XIT shares are up 77.7% vs. 52.6% for the TSX. The divergence in recent performance is even more significant. Money was still flowing in technology names while some other sectors (financials, materials, energy and gold) were in retreat. The other outperforming ETFs were the REITS and income trusts. The following chart demonstrates the relative performance:
chart courtesy of stockcharts.com
In Canada the iShares CDN Tech Sector Index Fund (XIT) consists of 5 holdings which can be studied separately or as a portfolio. The following table summarizes the earnings per share and earnings growth numbers for each company:
| Company | TSX Ticker | current year P/E | next year P/E | EPS Growth (1 yr) |
| Celestica Inc. | CLS-T | 12.34 | 10.93 | 12.94% |
| CGI Group | GIB.A-T | 12.57 | 11.76 | 6.90% |
| MacDonald Dettwiler & Assoc. | MDA-T | 15.49 | 12.62 | 22.75% |
| Open Text | OTC-T | 15.11 | 13.88 | 8.88% |
| Research In Motion | RIM-T | 16.29 | 13.90 | 17.12% |
| Unweighted Average | 14.36 | 12.62 | 13.72% |
(data courtsey of globeinvestor.com)
Since there are only 5 entries and depending on the commission structure and research availability one may elect to study each of the companies and decide on which, if any, is worth owning. The earnings snapshot gives a high level idea on sector valuations. These valuations have come a long way from the very high and unsustainable levels from a decade ago. They are more aligned with the rest of the market and can be considered accordingly.
In summary, the technology shares in Canada as represented by the XIT exchange traded fund (ETF) have outperformed the market. Hence, one can argue that as the market continues to be supportive of higher prices, the XIT ETF along with the component companies deserve fair consideration for inclusion in investor portfolios.
Disclosure: The author of this article, maplenotes.com and staff do not own shares in the companies highlighted above at the time this note was first published.
For a fund manager’s view of Open Text, see http://watch.bnn.ca/#clip268234 for a comment by David Burrows of Barometer Capital.
Lots of junior tech stocks are starting to get lots of attention now. SCG and TXS are two Canadian plays that have had positive growth in 2009 and are expected to grow 4-5 times between 2010 and 2011. Both stocks had positive earnings from Q1-q3 and are expecting great Q4 results soon. I suggest picking them up under 10c while you still can.
MAX MMC were in the same boat last year and look at them a year later. MAX-Maximizer software was bought out and MMC has gone up 6 fold from 3-4 cents to now over 30 cents.