The stock market crash of 2020 has wiped out billions in investor wealth. Major indexes such as the Dow Jones Industrial Average and S&P 500 Composite Index are trading close to 30% below record highs.
Canada’s most liquid exchange-traded fund (ETF) with exposure to the country’s largest companies is the iShares S&P/TSX 60 Index Fund, which is down 27%.
Investors are visibly worried, as their portfolios have experienced a significant decline in less than two months. The bear market has been driven by the COVID-19 pandemic that has brought global economies to a standstill. Consumer spending has dropped and there is a good chance the economy will be thrown into a recession.
The markets are expected to be volatile in the coming months. However, as we have seen before, no one has been able to successfully time the market. Thus, the current bear market can be viewed as a buying opportunity for contrarian investors.
Invest in high-quality growth stocks to create massive wealth
The current market crash has meant growth stocks such as Constellation Software (TSX: CSU) are trading at a lower multiple. Shares of Constellation Software are down 15% from record highs and have outperformed broader markets.
CSU is a top Canadian growth stock with a strong balance sheet and enviable market presence. The tech giant has a market cap of $27 billion and a debt of just $744 million. Constellation Software managed to crush the markets even during the great recession of 2008-09.
While the XIU fell over 50% between May 2008 and March 2009, CSU stock was up 22% in that period. The company has a unique business model where it acquires and builds vertical software businesses.
It buys companies with sustainable top-line growth and solid profit margins. These acquisitions are generally in the range of between $5 million and $10 million.
We can see that CSU gives equal importance to both revenue and earnings, which has helped boost investor wealth considerably. Its acquisitions are targeted across several verticals including public housing, bio-sciences, and asset management, giving it a diversified portfolio.
Most of the acquired companies provide mission-critical software services, resulting in high switching costs and robust customer retention rates.
Diversify your portfolio
An investment of $50,000 in CSU stock back in 2006 would have been worth a staggering $3.5 million today. However, it’s not prudent to put all your eggs in one basket. Investors need to identify similar growth stocks that can manage to outperform the bear market and generate index-beating returns over the long term.
As people are largely staying at home due to the coronavirus pandemic, companies such as Amazon are experiencing a surge in demand for its products and services.
While the epicentre of the virus has now shifted to Europe and the U.S, China has started opening up its economy, making tech giants such as Alibaba, Tencent, and JD.com viable picks.
There has also been an increase in demand for collaboration tools, driving shares of Zoom Video, LogMeIn and peers higher in this sell-off. Companies such as Lightspeed and Aritzia have seen a decline of over 50% in market value and will be well poised to outperform the broader markets in a turnaround.
Investors need to be greedy right now and build a solid portfolio of high-performing growth stocks that can help them retire wealthy with more than a million dollars in the bank.
