3 Canadian Tech Stocks That Could Fly Higher With A Weak Loonie

 | Feb 24, 2015 01:22AM ET

When Canadian consumers try to purchase a piece of clothing or even a book from an online U.S. retailer, the impact of the USD/CAD exchange rate will likely give them sticker shock. The U.S. dollar has gained tremendous ground on the Loonie (Canadian dollar) recently, hovering at a five-year high of $1.25 Canadian per $1 dollar U.S. However, as a savvy business investor, the exchange rate can act as a tremendous benefit when looking at certain Canada-based tech plays.

The investment thesis here is that tech companies are more capable of strategically shifting away their sales into the American market. With the larger than ever influx of SaaS and Cloud Computing companies entering the public markets, their service offerings extend largely to U.S. consumers, therefore denominating a majority of their sales in U.S. dollars. On the other hand, their costs, which are primarily Research and Development (R&D) and Selling, General and Administrative (SG&A) are incurred domestically, and therefore denominated in Canadian dollars. This allocation of sales vs. costs accompanied by a favorable exchange rate, has a tremendous effect on overall profits and financial performance.

The following Canadian tech small-caps all have more than 90% of their revenue in U.S. dollars while a large chunk of their costs are in the Canadian currency:

Absolute Software (TO:ABT) specializes in technology and services for the management and security of mobile computers, netbooks, and smartphones. About 50% of its costs are in Canadian dollars.