The Motley Fool is pitching its Stock Advisor Canada service lately with a tease that refers to Amazon’s “Project Vesta” … and it’s all about some Toronto-listed stock that apparently is about to beat Amazon at something.
“Beating Amazon” is one of those stories that appeals to everyone, of course — we all want to own the next stock that takes down a titan and upsets an industry… or, better yet, the next stock that has a shocking run to make you gazillions of dollars, so the “next Amazon” and “next Tesla” and similar stories always tend to get a fair amount of attention.
Here’s how the Fool’s email gets us interested:
“Amazon engineers are furiously working away on a top-secret project in their secretive design lab in Sunnyvale, California…
“Why don’t they want anyone to find out about it?
“Because there could be a king’s ransom up for grabs when Amazon releases this hush-hush technology as early as 2019.
“This top-secret project has been given the code name ‘Project Vesta’, and it could be the key to unlocking a multi-trillion-dollar fortune.”
That’s how to get an ad rolling, right? You want to immediately start visualizing the made-for-TV movie version… too bad Kevin Spacey isn’t all that marketable these days, he’d make a good Jeff Bezos.
But anyway, what’s the investment theme here? It is, of course, that someone is beating Amazon to the punch… here’s some more of the ad:
“… a grassroots Canadian company has already begun introducing this very same ground-breaking technology to the market.
“Which is why we believe that the one stock poised to benefit the most from the technology within “Project Vesta” is NOT Amazon…
“But is actually this innovative Canadian dark horse company, a TSX-listed stock that’s beaten the market by +1,264% since it went public just over 20 years ago.”
OK, I guess we’re going to have to work for this one — almost every time an “Amazon beater” is teased, the story ends up being a veiled reference to Shopify (SHOP), Canada’s current favorite tech company… but they haven’t been public for nearly that long, the company was founded in 2004 and went public in 2015. We need someone older.
So what other clues do the Foolies drop?
“… you probably haven’t yet heard of this Waterloo-based company that’s only about 1% of Amazon’s size right now….”
OK, so that’s making things a little better… there are only a couple dozen Toronto-listed technology companies with headquarters in Ontario (including Shopify), and Waterloo is not that big a city. And, frankly, most of those companies haven’t been public for anywhere near 20 years.
The stock has doubled the TSX return since the Foolies first recommended it in 2015, they say…
So what does the Thinkolator say? There are two matches for this one, and it’s possible that either one is correct — if you’re looking for a company that is roughly 1% the size of Amazon, is headquartered in Waterloo, has roughly doubled the average TSX return since some undisclosed point in 2015, and has been public for 20 years, with at least some focus on artificial intelligence, you could make the case for either Blackberry (BB) or OpenText (OTEX), both of which have been listed in Toronto for more than 20 years (OTEX has been public for a couple years longer than Blackberry).
Much of the ad, whose details I’ll spare you, is all about the general promise of artificial intelligence and machine learning — an area where there’s clearly a lot of investment happening, and where we’ve seen dozens of stocks teased… A.I. seems likely to impact every industry, eventually, as computers get smarter and better at learning without our help. It’s not a “flip the switch” revolution that will change everything overnight, it’s a gradual improvement — like most other things in technology. Amazon gets better at guessing what you’ll want to buy next, or what the most efficient way to delivery a package might be on a rainy Tuesday in November in suburban Cleveland. Google gets better at guessing what you’re searching for. My new car is way better at telling me when I’m going to drive off the road, or alerting me when I’m about to hit something, than the 2006 model I used to drive.
So it’s evolution we usually see, not an overnight change caused by a predictable catalyst… but you don’t need to know when we’ll have our first real “self driving” cars on the road in every state, you just need to know that cars are getting smarter and smarter, and that means there are more software engineers and designers working on each new car, and more chips going into each car, and competition to supply the “brains” of those cars and set up the networks that allow cars to talk to each other and compute the millions of variables that a driver needs to watch.
And Blackberry and Open Text are both thematically reasonable ideas for an artificial intelligence future, too – Blackberry is primarily a cybersecurity/mobile security company in most investors’ minds these days, I’d say, but it is active in automotive systems, including their QNX unit for self-driving cars (they have an autonomous driving partnership with Baidu (BIDU), for example)… and also just recently bought Cylance, which uses AI for cybersecurity and is expected to be rolled into QNX.
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And OpenText is more of a software rollup company — they are focused on riding technology trends by buying promising companies in different areas that they can roll into their systems and cross-sell, and artificial intelligence is certainly a key part of their future hopes. OpenText also launched its latest artificial intelligence operating system, called Magellan, just last year, aiming for it to be a strong open-source competitor to IBM’s Watson.
And while neither OpenText nor Blackberry seems to be focusing specifically on a home robot, which is what Amazon’s “secret” Project Vesta is working on, OpenText is working directly with robotics companies on managing the data that robots collect and feed off of. The CEO of OpenText even presented a keynote with a KUKA robot last year, showing how OpenText analyzed the robot’s data on the cloud in real time.
OpenText is about twice as large as Blackberry, despite not having anywhere near as strong a historical brand name, and they’re also quite a bit more compelling on a “current financials” basis.
Both Blackberry and OpenText have been recommendations of the Motley Fool’s Canadian Stock Advisor newsletter in the past, though I can find confirmation for only OTEX as a holding of theirs back in 2015… it looks like Blackberry is a much more recent recommendation (and holding, the Motley Fool itself actually owns both stocks now, too, per their recent disclosures)… so that and a little educated guessing and a small bit of chugging and chewing by the Thinkolator lead me to a pretty high certainty that they’re teasing OpenText this time out.
That’s not the one I have some exposure to, by the way — I have a small options speculation on Blackberry that’s been unsuccessful to date, and have covered Blackberry a little more often… most recently when it was pitched over the summer by Successful Investing as a busted tech stock with a big-name backer (Fairfax Financial’s Prem Watsa — who has lost tons of money for us Fairfax shareholders on Blackberry so far).
But OTEX is an interesting stock, even though I’ve never covered it. Here’s a free piece from the Motley Fool following the August recent earnings report that goes into their reasons for owning it a bit, and another bullish update from last month that incorporates their most recent quarterly earnings.
I don’t know if they’re right, and companies that are built by roll-up (routinely acquiring companies in a particular sector or niche) do run the risk of overspending and overlevering or issuing so many shares that they can’t really grow per-share earnings… that hasn’t happened yet to OTEX, but I’d have to research it much more thoroughly to get a handle on what their future looks like.
The analysts, who certainly know the stock a lot better than I do, predict pretty solid but unsexy growth numbers for the next couple years — they see earnings going from $3.33 last year to $3.50 this year (they’re in Q2 of their fiscal year right now), rising to $3.81 and then $3.94 in the following fiscal years. That’s solid but not particularly notable for a tech stock, though presumably the forecasts don’t assume that they make more good acquisitions.
But the valuation, too, is solid and not particularly notable — at $44 you’re only paying about 12X this year’s expected earnings, so it’s probably OK to have pretty modest growth expectations. They do also have a substantial amount of debt, but their cash flow can easily cover it (they have about $4 billion in debt compared to their $11 billion market cap, and generate about a billion dollars a year on 3.5 billion in sales, so the leverage doesn’t look particularly worrisome at first glance). And they pay a decent dividend that approaches 2% (1.85% at $44), and they’ve been growing the dividend.
So it might not make you lose sleep from the night sweats, dreaming fervently about a future private island… but my first reaction to the stock after skimming through the financials and recent articles for a few minutes is “not bad.” Pretty solid company, reasonable valuation.
It’s your money, though, so what you think is the important thing… like the idea of OpenText? Think they’re well positioned with their “big data” and AI services? Think Blackberry’s got a better handle on that future? Or do you perhaps prefer some big data or A.I. company that’s not headquartered in Waterloo, Ontario? Let us know with a comment below… thanks for reading!
Disclosure: I own shares of Amazon and Google parent Alphabet, and call options on Blackberry. I am not invested in any other companies mentioned above, and will not trade in any covered stock for at least three days following publication, per Stock Gumshoe’s rules.