TFSAs can protect an unlimited amount of capital gains from taxes. That’s an opportunity you shouldn’t pass up.
While many stocks promise big upside, few companies are actually capable of delivering. Fortunately, there’s a handful of stocks with proven records of doubling, tripling, and even quadrupling shareholder capital. On many metrics, their futures look just as bright.
Tripling your TFSA portfolio is hard, but the following two stocks are your best bets.
Platforming global commerce
Want to compound your capital as quickly as possible? Find a platform business.
As the name suggests, platform businesses merely provide the base level infrastructure, enabling other companies to build on top.
Think of the Windows operating system. Microsoft Corporation didn’t build all the applications that are now available on a Windows computer. In fact, it is itself responsible for less than 1% of the applications available to users.
Microsoft was able to build the base level operating system, and invited others to build the rest. This causes a virtuous cycle. Developers build on the platform to sell their applications to users. More applications attracts more users, which in turn, attracts more developers.
At some point, platforms gain critical scale, at which point nearly every user and developer congregates to a single service. That’s exactly what happened with Windows.
Shopify Inc (TSX:SHOP)(NYSE:SHOP) is using the platform strategy for another market: e-commerce. The company offers an easy-to-use platform that allows entrepreneurs an effective way to create a digital storefront in minutes. I’ve used the Shopify system myself and can attest to how intuitive it is.
Why is Shopify a platform? Because it opened up future development to outside companies. As we speak, hundreds of businesses are busy launching new capabilities on the Shopify system. These add-ons allow users to do things that no other platform enables. That attracts more users, which attracts more developers. Sound familiar?
Shopify stock has increased by 1,860% in under five years, yet it still controls a minuscule fraction of the market. Shares have plenty of room to triple in the months and years ahead.
Building a juggernaut
Constellation Software Inc (TSX:CSU) is also building a massive business, but it’s not upfront and centre. Instead, Constellation focuses on behind-the-scenes software that the vast majority of use will never see, nevertheless actually use.
Founded by a venture capitalist in 1995, the company’s strict focus was to acquire niche software products that meet specific criteria: they enable mission critical processes for customers, and they face limited competition. That’s the secret recipe, and it’s worked wonders for shareholders. Since 2006, shares have increased by nearly 8,000%.
Take a closer look at Constellation’s recipe for success and you’ll realize how powerful it is. Software that enables mission critical processes can be costly and dangerous to replace. Niche offerings with limited competition mean that, oftentimes, customers can’t switch even if they wanted to. That’s resulted in sky-high margins and industry leading contract renewal rates.
From there, Constellation is running a simple rinse-and-repeat strategy. The company has surpassed a $30 billion valuation, but its addressable market may ultimately exceed $1 trillion. This is a company that few people have heard of, but judging by the incredible stock price performance, investors should care little about increased exposure.
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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.
Teresa Kersten, an employee of LinkedIn, a Microsoft subsidiary, is a member of The Motley Fool’s board of directors. Tom Gardner owns shares of Shopify. The Motley Fool owns shares of and recommends Constellation Software, Microsoft, Shopify, and Shopify and recommends the following options: long January 2021 $85 calls on Microsoft and short January 2021 $115 calls on Microsoft.
Fool contributor Ryan Vanzo has no position in any stocks mentioned.