The stock market has almost recovered from the March crash on the back of the government’s stimulus package. Many analysts believe another market crash is in the cards as the stock market is not in sync with the country’s falling gross domestic product (GDP). According to Statistics Canada, real GDP contracted at an annualized rate of 38.7% in the second quarter, whereas the S&P/TSX Composite Index rose 16%. Warren Buffett’s indicator shows that the stocks are overvalued, indicating another market crash.
You can protect your investments from another stock market crash if any. Invest in stocks that are resilient to the pandemic and economic downturn.
TFSA Investing: Two stocks can make you a millionaire
The Canadian government gives you a chance to enjoy your investment income tax-free by investing through the Tax-Free Savings Account (TFSA). It launched the TFSA in 2009. If you are in your mid-30s and have just opened a TFSA, you can contribute up to $69,500.
Investing is like making wine. If you have brewed the wine well, it will only grow in value with time. Today I’ll introduce two stocks that can convert your $69,500 into $1 million in 10 years.
Constellation Software stock
Constellation Software (TSX: CSU) is resilient to the economic crisis because of its diversified portfolio and high exposure to public sector customers (66% of revenue). It operates as a private equity firm. It acquires small companies that provide mission-critical software in niche verticals that have limited competition. Over the last 25 years, it has acquired over 260 companies and expanded its presence across 100 plus geographies. Over 125,000 companies use Constellation’s services.
Constellation acquires companies that have large cash flows. It uses these cash flows to acquire new companies. Hence, it has a healthy balance sheet with $216 million in net cash and $700 million in the undrawn credit facility. The company depends largely on acquisitions to increase its revenue and adjusted EBITDA at a compound annual growth rate (CAGR) of 14% and 11%, respectively.
Constellation stock has been growing at an average annual rate of 20%. Even this year, the stock has surged 20%. If you invested $69,500 in this stock in January 2010, you would have over $2.7 million in your TFSA. Even though Constellation’s growth has slowed, it still has the potential to convert your $69,500 to $1 million by 2020.
Descartes Systems stock
Descartes Systems (TSX: DSG)(NASDAQ: DSGX) is the world’s seventh-largest provider of logistics and supply chain management software. The globalization of trade, growing trade war, and the e-commerce boom has made logistics and supply chain complex. The ever-growing need for optimization is driving the demand for Descartes’s solutions. It has a diversified customer base ranging from airlines, logistics, manufacturing to e-commerce sites.
Descartes has a large number of offerings, such as e-commerce shipping and fulfillment, transportation management, and customs and regulatory compliance. It also provides end-to-end supply chain solutions. During the pandemic, it saw a growing demand for its e-commerce shipping and fulfillment solutions. The company has increased its revenue at a CAGR of 12% between fiscal 2016 and 2020.
Descartes’s stock has been growing at an average annual rate of 25%. If you invested $69,500 in this stock in January 2010, you would have over $816,000 in your TFSA. The e-commerce wave has just begun. As the supply chain complexities grow, so will Descartes. The stock has the potential to convert your $69,500 to $1 million in the next 10-12 years.
Investor corner
As Warren Buffett says, buy the stock you would like to hold for the next 10 years. Both Constellation and Descartes are low-risk growth stocks that grow in value over time. These stocks can help you retire early as a millionaire without worrying about taxes.
