2 High-Risk, High-Reward Stocks to Buy in 2023

·3 min read
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Written by Chris MacDonald at The Motley Fool Canada

Some investors have enough risk tolerance to take advantage of high-risk investments. Returns generated by high-risk stocks can be extremely volatile due to massive price movements in the short term. But, although highly risky, they tend to offer handsome returns.

For such daring investors who wish to generate lucrative returns from the Canadian stock market in the short term, here are two high-risk, high-reward stocks to consider buying in 2023.

Open Text

Open Text (TSX:OTEX) is an organization that is involved in the development, marketing, and selling of Enterprise Information Management software. It has its headquarters in Ontario and is Canada’s fourth-largest software firm.

The tech giant’s recent results have been somewhat less than stellar of late. Open Text saw its total revenue grow by only 2.4% year over year, reaching US$897 million. Its annual recurring revenue showed slightly better year-over-year growth of 3.6%, amounting to US$725 million. That said, investors seem to be most interested in the company’s profits from its cloud services business, which came in at a whopping US$409 million, up by 12% from the previous year.

Open Text has also recently completed its acquisition of Micro Focus International. This is a top-ranking mission critical software provider that accelerates digital transformation for its clients. According to Mark J. Barrenechea, Open Text’s chief executive officer and chief technology officer, this takeover will allow the company to integrate digital processes and drive growth for clients of all sizes.

Constellation Software

Constellation Software (TSX:CSU) is a Canadian software holding company. Apart from its home country, it has operations in the U.S., the U.K., and other European nations. Usually, this company acquires only vertical market software firms and, to date, has completed the acquisition of more than 500 organizations.

This software company recently reported fourth-quarter (Q4) 2022 revenue of €263.7 million. Compared to Q4 2021’s €207.6 million, the company’s top line has grown at a rather impressive 27% rate. Moreover, Constellation’s net income also rose from €27 million to €28.7 million in the span of a year.

Constellation Software, along with its subsidiary Lumine Group Inc., also recently completed its 100% acquisition of WideOrbit Inc. It is a U.S.-based software company that caters to the media market, which will help Constellation expand its domain expertise and presence in the communications space.

Bottom line

It is quite evident that both of these high-risk, high-reward stocks belong in the portfolios of tech investors. Some of the best names Canada has to offer, I think Open Text and Constellation have a bright future, and year-over-year comps should improve in the quarters to come.

In order for investors to stay ahead of rapid technological innovation and growth, some portion of one’s portfolio ought to be allocated to such stocks. In my view, these are two of the best high-risk, high-upside options in the TSX right now.

The post 2 High-Risk, High-Reward Stocks to Buy in 2023 appeared first on The Motley Fool Canada.

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Fool contributor Chris MacDonald has no position in any of the stocks mentioned. The Motley Fool recommends Constellation Software. The Motley Fool has a disclosure policy.