It’s no secret that artificial intelligence (AI) is the huge elephant in the room, sitting among a slew of traders day in and day out. It can leave many of us feeling like we’ve missed the boat when it comes to AI stocks. However, there may still be a method to find hidden AI gems in the madness.
While some companies are shouting loudly, the most “pick me” of the bunch, others are quietly building, powering, or enabling the systems behind them. Looking beyond pure AI, focusing on data auditing, following the infrastructure trail, or auditing partnerships are great ways to find these gems. Today we’re going to look at two AI stocks to consider.
Scary
First of all, we did that Enghouse systems (TSX:ENGH), an enterprise software and services company operating through Interactive Management Group (IMG) for customer interaction and asset management for operational support systems. These use AI, analytics and automation to bring companies together.
The AI share has grown both organically and through acquisitions, with the third quarter results proving its strength. Many of the results missed analyst estimates, leading to a share price drop. That being said, it remains a top choice for a number of reasons.
AI stock has low debt and a strong balance sheet, and even paid a quarterly dividend of $0.30. Moreover, analysts predict modest growth in the future. This is mainly due to the recurring revenues and the Software as a Service (SaaS) basis. With a solid acquisition pipeline, organic growth, and a dividend yield to cushion it, it’s an AI stock that could be a hidden gem waiting to shine.
CMG
Next we have Computer Modeling Group (TSX:CMG), a software and services company primarily focused on oil and gas, specifically reservoir simulation. This specificity makes it a niche play, embedding AI and analysts in the energy sector. Once again we have an AI stock that investors may be missing thanks to its recent earnings numbers.
The company’s first quarter results showed that total revenue fell 3% year over year, although recurring revenue rose 7%. In addition, free cash flow (FCF) fell by 22%, with market uncertainty impacting operations. Still, the company’s domain moat and specialization is something that cannot be ignored. Switching costs are high, so while AI stocks should work for new customers, once companies come on board, switching costs are high, making the stock quite sticky.
Plus it’s cheap! AI stock trades at just 24 times earnings, quite cheap compared to other AI stocks. Moreover, at the time of writing, it has a nice dividend yield of 0.63%. Not much, but still something that many other AI stocks don’t even offer. And with a beta of 0.08, it’s a conservative way to get into the AI sector.
In short
Not all AI stocks are risky investments. In fact, these two are downright conservative. Furthermore, they all come from earnings that have led to a decline, making them valuable at these levels. So if you’re looking for hidden gems ready to shine, consider these on the TSX today.
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