Welcome to the second edition of our new series, ‘Stock Teasers’, where we aim to provide investment research on a wide range of topics. In this edition, Cross-Border Stocks, we spotlight one Canadian stock and one US stock, regardless of sector or size. Let’s dive in!

Canadian Stock: CGI (GIB.A)

CGI is a Canadian company that provides IT and business process services to clients worldwide. It has over 90,000 employees and operates in more than 40 countries. It is one of the largest IT services providers in the world and has a strong reputation for delivering high-quality solutions to its clients.

Over the past 10 years, its price has appreciated at a 14.8% annualized rate, with good forward analyst expectations for sales and earnings growth, and a five-year sales CAGR of 4.4%. It currently has a market cap of $24.3 billion, it has strong net profit margins of 11.4%, a free cash flow yield of 5.9%, a reasonable forward P/E of 17.9X, and has demonstrated low volatility over the years.

Growth is somewhat muted on a constant currency basis, but it continues to execute a balanced approach between growth through acquisitions and share repurchases. It has a buyback yield of 2.5% and has reduced its outstanding shares by 24% over the past 10 years through buybacks.

The graph below shows that its share price has been steadily climbing up and to the right over the past several years. It has an impressive recent trend of beating earnings expectations, and its profit metrics have shown expansion over the years.

US Stock: Zoetis (ZTS)

Zoetis is an American company that produces medicines and vaccines for pets and livestock. It is the world’s largest animal health company, with operations in more than 40 countries. It was formerly a subsidiary of Pfizer, but became an independent company in 2013. It offers a wide range of products and services for animals, including anti-infectives, vaccines, parasiticides, diagnostics, and technologies.

Over the past 10 years, its price has appreciated at an impressive 19.8% annualized rate. Sales and earnings have grown at a 7.9% and 14.4% five-year CAGR, respectively. The company does have somewhat elevated debt levels, but its liquidity is strong, it has an excellent net profit margin of 27%, and a decent free cash flow yield of 1.7%. It trades at a high valuation of 34X forward P/E and 10X forward price-to-sales, however, this can be justified as it has shown expanding profit margins, is a leading player in its industry, and the industry it operates in is showing secular tailwinds.

In the graph below, we can see that its share price has been expanding over time, and it has a history of consistently beating earnings expectations, with only three misses in the past 10 years. Its profit metrics have also shown expansion, and we feel this is reflective of its strong management team being spun out from Pfizer, as well as its expanding profit margins.

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