Even before the tech-heavy Nasdaq composite index breached the 3,000-point barrier on March 13 for the first time in 12 years, tech stock analyst Nick Waddell was seeing signs of what he hopes is a tech stock revival.
On February 20, for example, he noted Canadian technology stocks were trading in heavier volumes than mining company stocks on the TSX-Venture exchange.
“There are 10 times as many mining stocks as there are tech stocks, yet I’m seeing days on the TSX-Venture – where some of the stocks are more liquid – where the top three traders on the exchange, volume-wise, were tech stocks,” said Waddell.
The author of cantechletter.com added that it’s not just the public markets that appear to be taking a renewed interest in technology companies.
“Anecdotally, I’m hearing from bankers in Toronto, and people who put deals together, that they’re not looking to do mining deals anymore – they’re looking to do tech deals.”
Other analysts are more circumspect.
Driven by Apple’s tremendous profitability and large Internet-based companies like Groupon, LinkedIn and Facebook going public, tech stocks in the U.S. are riding a wave of renewed enthusiasm not seen since the dot-com crash at the turn of the century.
Pardeep Sangha, a PI Financial technology analyst, agreed that things appear to be looking up for tech stocks in general, but tempered any enthusiasm for a wholesale tech stock revival in Canada with several blunt realities:
•investment in Canada is still heavily dominated by resources;
•there are only half a dozen large-cap technology companies in Canada – most are small or medium-sized and therefore fly under the radar screen of investors and analysts; and
•while the biggest buzz in the U.S. tech sector is Facebook’s initial public offering (IPO), in Canada the biggest buzz is Research In Motion’s losing battle with Apple.
“There’s a lot of companies that are in the small- and mid-cap space,” Sangha said. “If you look at where things are happening in the U.S., it’s the larger caps, like Apple, that are doing really well.”
Bill Tam, CEO of the BC Technology Industry Association, said the Canadian tech sector is not yet enjoying the same kind of market uplift seen south of the border.
He pointed out that there were only two tech company IPOs in Canada in 2011 (Vancouver’s Avigilon Corp. was one of them) compared with two per week in the resource sector.
“In general, there’s not the same level of buoyancy in the market for Canadian tech stocks as there is on Nasdaq, largely due to the overweighting of resource stocks,” Tam said.
He added that that usually drives down Canadian tech stock prices and makes it harder for tech companies to raise money through share offerings.Because Canadian technology companies are comparatively undervalued, it makes them ripe for acquisition. In 2011, American companies bought approximately a dozen mid-sized Canadian technology companies. That might not have happened had those companies inter-listed on both Canadian and American stock exchanges, said Darren Seed, vice-president of investor relations for Westport Innovations Inc., which lists on the TSX (WPT) and Nasdaq (WPRT).
“If it’s a tech company, solely listed on a Canadian exchange, I would absolutely agree they are undervalued,” Seed said. “That’s one of the benefits of dual listing – that exposure to that high-tech interest in the U.S. market.”
Westport is one of 47 Canadian companies listed on the Nasdaq, a quarter of which are B.C. companies.
Seed is the national membership chairman for the Canadian Investor Relations Institute. As such, he often preaches the benefits of inter-listing.
“It is paramount for any tech-related or industrial-related company to list on a U.S. exchange,” He said. “The investor interest, the number of investors and the number of analysts are logarithmically greater in the United States than in Canada.
“On average, 10% of our daily volume is on the [TSX], and 90% is traded on the Nasdaq.”
Seed said there’s still investor reticence in the biotech and clean-energy sectors, especially in solar and wind. But he added that the high-tech space – electronics, software, hardware, web technologies – is seeing renewed activity.
Westport’s stock price has nearly tripled since mid-March 2011.
“That interest is solely coming from the United States and Europe.” •
