If you’re an investor who’s looking to outpace the market averages over the long run, it can pay dividends to look to some of the smaller companies out there. In this piece, we’ll have a look at two of my favourite growth studs that are worthy of a permanent spot in one’s long-term-focused portfolio.
So, if you’ve got at least 10 years to invest, consider stashing the following in your TFSA or RRSP at current levels. I think each name has a growth story that could fuel solid risk-adjusted returns for many years to come.
Aritzia
I’d urged investors to take a raincheck on the Aritzia (TSX: ATZ) IPO a few years back. As it turned out, that was the right call, as shares went on to plunge from a high of $18 and change to $10 and change — a punishing 45% drop. I changed my tune on the name in 2018 and pounded the table in 2019. The company is executing, and it’s doing so despite the difficult circumstances brought forth by the COVID-19 pandemic.
Today, the stock is at $35 and change, a new high, thanks in part to its incredible e-commerce platform and a U.S. expansion that’s going very well. Moving forward, I not only expect management to continue delivering one of the best omnichannel retail experiences out there, but I also suspect the firm will really start to leverage its brand power in an era that could see discretionary spending continue to soar.
The power of the Aritzia brand is real. Over time, I expect affinity for the brand, especially in the U.S. market, will increase. Moreover, with a record level of household debt being taken on south of the border, I continue to pound the table on the company’s expansion south. I think the U.S. market may even hold more potential than the Canadian market. And that’s really saying something.
At these valuations (shares trade at over 63 times trailing earnings), there’s limited room for hiccups. That said, I find the macro environment and the incredible management will make Aritzia tough to stop in the early stages of the roaring 2020s. Do not bet against the $4 billion Vancouver-based fashion retailer.
Canadian Tire
Canadian Tire (TSX: CTC.A) is another Canadian retail stud that investors were way too quick to give up on when the tides became rough earlier last year. Like Aritzia, the e-commerce platform was a smash hit. And as the economy reopens, the firm’s omnichannel strengths will really show through.
As a discretionary retailer, it’s easy to get excited amid a domestic spending surge. But what I find more exciting is the firm’s expansion into new exclusive merchandise. Canadian Tire is making a big splash into pet food, with Petco at its side. And with a rock-solid balance sheet, I wouldn’t at all be surprised to hear the firm make further acquisitions that bring the traffic into its stores (or its website).
Management knows how to adapt to the new age of retail. With Triangle rewards and the financial business poised to pick up traction, I think investors would be very wise to continue adding to positions on the way up. The stock has been tested, and it’s a top candidate for any TFSA that aims to crush the TSX over the long run.
