The Best Stock Over $1,000 (Hint: It Isn’t Amazon)

Constellation Software Inc. (TSX:CSU) is a little-known stock that is a good stock for an RRSP or TFSA.

| More on:

I want you to close your eyes for a second and picture Warren Buffett – preferably without a Dairy Queen Blizzard.

Now imagine that you are in Warren Buffett’s shoes. As you sit down at your wooden desk you notice a folder on your desk.

As you open the folder, you glance at the About Us section of the company and it says that it focuses on the acquisition of companies that deliver revenue growth of 20% or more per year and companies that are in the number one or number two position in its vertical market.

Would you be interested in purchasing this company? The answer should be a resounding yes!

The company that I’m referring to is Constellation Software (TSX:CSU), an international provider of market-leading software and services to a myriad of industries. Its business model is to use acquisitions to leverage growth and develop its business.

The company was founded in 1995 as a conglomerate of leading vertical market companies and currently has over 125,000 customers in over 100 countries around the world.

Constellation is a good investment based on its niche target market and its increasing operating income.

Niche target market

It’s been a very long time since I’ve seen a company with the focus of Constellation. Ever since the founding of the company, its mission has remained unchanged.

To this day, it continues “to assemble a portfolio of vertical market software companies that have the potential to be leaders in their particular market.” It’s this philosophy that has allowed the company to be a leader in the vertical market sphere.

For those of you unfamiliar with the term “vertical market,” it describes a market whereby companies offer goods and services specific to an industry. This is the opposite of a horizontal market that offers goods and services to a large group of customers such as all businesses, men, children or women. An example of a horizontal industry is Staples, which offers office supplies.

Constellation’s portfolio of companies include Volaris, Harris, Jonas, Vela Software, Perseus Group and Total Specific Solutions. Each company specializes in a handful of industries but as a whole cover almost all industries in existence.

Increasing operating income

I can’t stress enough how important operating income is to a company’s success. Operating income is income before the deduction of one-off expenses and provides a clearer picture of how a business is doing.

Constellation’s operating income increased from $199 million in fiscal 2014 to $530 million in fiscal 2018. Its operating income has increased each year for the past five fiscal years, which is impressive.

Bottom line

Although the stock is trading above $1,000, I still believe that Constellation is worth the investment.

There are not many companies out there that serve a niche market. Take the restaurant industry as an example. Even though McDonald’s and The Keg target different customers, both chains serve food.

With Constellation, the company leaves nothing to chance with its acquisition strategy focused on buying the best of the best companies in each market segment, enabling it to achieve stellar growth year-over-year.

This is coupled with an increasing operating income, which indicates that the company is growing. Simply put, Constellation is a solid investment despite the hefty per share price.

If you liked this article, click the link below for exclusive insight.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Fool contributor Chen Liu has no position in any of the stocks mentioned. David Gardner owns shares of Amazon. The Motley Fool owns shares of Amazon. Constellation Software is a recommendation of Stock Advisor  Canada.

More on Tech Stocks

Abstract Human Skull representing AI
Tech Stocks

2 Top Artificial Intelligence Stocks to Buy This Summer

Investing in AI stocks such as AMD and Snowflake should help investors deliver outsized gains over the next four years.

Read more »

Rocket lift off through the clouds
Tech Stocks

1 AI Stock Up 11% to Own in a TFSA for Long-Term Growth

Never mind chasing flashy AI start-ups with soaring valuations. Check out this profitable Canadian tech powerhouse that has stood the…

Read more »

Bitcoin
Tech Stocks

2 Top Crypto Stocks for the Blockchain Boom

Here's why investing in crypto stocks such as Coinbase can help you deliver outsized gains over the next 12 months.

Read more »

four people hold happy emoji masks
Tech Stocks

This Stock Down 14% Is My Hold-Forever Investment

The pullback in this high-growth Canadian stock is a buying opportunity for investors seeking outsized returns in the long term.

Read more »

A microchip in a circuit board powers artificial intelligence.
Tech Stocks

This Tech Stock Could Dominate the Future of AI and Cybersecurity in Canada

OpenText may come to dominate the cybersecurity arena in Canada.

Read more »

Data center servers IT workers
Tech Stocks

Best Stock to Buy Right Now: Open Text vs CGI?

Both companies are dealing with information technology and harnessing the power of AI. Only one has an unmatched history and…

Read more »

Concept of big data flow, analysis, and visualizing complex information for artificial intelligence
Tech Stocks

A Tech Stock to Buy Now in the AI Bull Market

Alphabet (NASDAQ:GOOG) stock may be the cheapest American AI tech stock to pick up as markets near new highs.

Read more »

Digital background depicting innovative technologies in (AI) artificial systems, neural interfaces and internet machine learning technologies
Tech Stocks

Is This Canadian Tech Stock the Next Big AI Winner?

This Canadian tech stock is one of the biggest names out there still, and it's one to keep an eye…

Read more »