Growth stocks have led the market higher for several years. If you want big returns, you need to focus on these companies.
There’s one stock in particular to target. It has produced millionaire-maker profits for over a decade.
Focus on these growth stocks
Before I reveal my top stock, you need to understand which stocks are capable of massive growth. It turns out that the model to keep in mind is surprisingly simple: focus on software stocks.
Just think about how software companies grow. They simply send a download link to the new customer. Growth is instantaneous and virtually free. Contrast that with a hardware business that needs to physically produce another product to grow. Growth is slow and costly.
If you want to grow your portfolio as quickly as possible, stick exclusively with software businesses.
“Software and online-services companies can quickly become billion-dollar giants,” explains global consultancy McKinsey.
By focusing on software companies, you’re already stacking the odds in your favour. Now, you need to narrow down your choices even more. To find the next millionaire-maker stock, simply look at yesterday’s rapid-growth software stocks.
“Our research revealed that higher growth rates portend sustained success,” stresses McKinsey.
This stock can make you millions
If you’re looking for a proven track record of growth, few stocks beat Constellation Software (TSX:CSU). Many people have never heard of this company because it focuses on enterprise software. These solutions rarely make waves with everyday consumers.
Since 2006, shares have risen more than 6,000%. A $20,000 investment would now be worth $1.2 million. The secret isn’t that Constellation focuses on flashy products, but that it sticks with niche and mission-critical software solutions.
“Niche sounds like a bad place to be,” I recently explained. “Wouldn’t you rather focus on bigger opportunities? That, however, is where the competition is. If you stay niche, competition falls tremendously, providing better retention rates, lower selling costs, and better pricing power.”
Niche products improve pricing and profits, but the mission-critical aspect ensures high contract renewal rates.
“If you run a business and use a piece of software to automate a mission-critical process, is that really something you want to mess around with? This only compounds Constellation’s pricing power and retention rates,” I concluded last year.
Bet on Constellation stock right now?
This growth stock isn’t cheap. You must pay a premium to own a proven millionaire-maker stock. But if you look at its history, Constellation has justified its premium valuation time and time again. Shares have even moved higher during a market correction!
Now valued at $36 billion, it’s very reasonable to expect the company to surpass the $100 billion mark sometime this decade. Will shares quadruple in a single year, like they have in the past? Probably not. For those returns, you need to look at smaller software stocks. But will shares continue to beat the market? That’s something I’m willing to bet on.
You rarely get a chance to buy high-quality growth stocks on-sale. Today’s valuation may be the best entry point you’ll ever get.
The best growth stock (according to our stock-picking professionals) is actually....
Before you consider Tesla, you may want to hear this.
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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.
The Motley Fool owns shares of and recommends Constellation Software. Fool contributor Ryan Vanzo has no position in any stocks mentioned.