Market Downturn: Growth Stocks to Load Up

The stock market rises in the long run. Quality growth stocks are at good valuations for accumulation through 2022 and likely into 2023.

| More on:
Target. Stand out from the crowd

Image source: Getty Images

Central banks are expected to continue raising interest rates in the near term to curb inflation that’s still too high. Compared to the Bank of Canada’s target of about 2%, the latest inflation rate in August was 7%.

As the stock market downturn plays out, investors should consider adding to quality growth stocks for long-term wealth creation. The key is to use excess cash for purchases to ensure you won’t need to tap into this investment money at a loss in the near term should prices fall lower. Here are a couple of growth stocks you can buy more of over time, as market volatility provides opportunities to buy at lower prices.

A top-notch tech stock

Constellation Software (TSX:CSU) is a fabulous business and easily one of the best stock performers on the TSX in the long run. For instance, it outperformed the Canadian stock market in the last three, five, and 10 years. In the long run, it’s a substantial difference in wealth creation. Its 10-year annualized returns are almost 36.8% versus the Canadian stock market’s return of almost 8.4% in the period.

Notably, the tech stock has been trading in a sideways range since the second half of 2021. Rising interest rates are increasing the cost of capital for businesses, which can slow down Constellation Software’s merger and acquisition activities in the short term.

Constellation Software is such a high-quality company that the tech stock hardly goes on sale. Even during the March 2020 pandemic market crash, it traded at about 40 times earnings, which is roughly the multiple it’s trading at now. At about $1,926 per share at writing, analysts have a 12-month consensus price target that represents a decent discount of approximately 25%.

A growth stock in the financial services space

goeasy (TSX:GSY) stock’s 10-year annualized returns of 36.1% are also very impressive. After hitting a 52-week high of $218 per share, the growth stock has declined about 46% to roughly $117 per share. At about 10.7 times earnings, this is below its long-term historical valuation. That is, it’s a reasonable valuation to accumulate shares for long-term growth.

The near-term weight in the growth stock includes concerns about rising interest rates and potentially a higher percentage of loan losses. Its recent net charge off rate of 9.3% in the second quarter (Q2) was in line with the leading Canadian consumer lender’s target range of 8.5% to 10.5%. Moreover, its loan-loss provision rate has improved slightly by 0.10% to 7.68% in Q2 versus Q1 due to an improved product and credit mix of its loan portfolio.

goeasy also offers a nice dividend yield of 3.1%. And it will continue increasing its dividend over time for the long haul.

Foolish investor takeaway

No one knows how long the market may be depressed in this interesting economic environment. However, because of capital tightening, it would be smart for Foolish investors to ease into, load up, and build sizeable stock positions over time.

Both Constellation Software and goeasy are growth stocks that have strong long-term returns potential. Investors who can withstand the near- to medium-term market volatility could see their wealth swell over the next decade and beyond. Don’t just rely on these two TSX stocks, though.

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.

Fool contributor Kay Ng has a position in goeasy. The Motley Fool recommends Constellation Software. The Motley Fool has a disclosure policy.

More on Stocks for Beginners

edit Sale sign, value, discount
Dividend Stocks

3 Remarkably Cheap TSX Stocks to Buy Right Now

These three cheap TSX stocks are some of the best buys on the TSX, and yet their share price is…

Read more »

Family relationship with bond and care
Dividend Stocks

TFSA Investors: 3 Cheap Canadian Stocks for Retirees

These three Canadian stocks are super cheap for retirees looking for a great buy that will last the test of…

Read more »

A airplane sits on a runway.
Stocks for Beginners

Are Airline Stocks a Good Buy in December 2023?

Does the recent broader market recovery make Canadian airline stocks attractive to buy in December 2023? Let’s find out.

Read more »

edit Safety First illustration
Stocks for Beginners

For Friday: Safe Stocks to Buy in Canada for December 2023

The safest Canadian stocks may not be as obvious as it seems. Here are two safe stocks that have delivered…

Read more »

Value for money
Stocks for Beginners

2 Top Canadian Value Stocks in December 2023

Buying these top Canadian value stocks in December 2023 can help you expect big returns on investments in the long…

Read more »

data analytics, chart and graph icons with female hands typing on laptop in background
Stocks for Beginners

Where to Invest $1,000 in December 2023

These stocks are the perfect option for those seeking to put some cash away, mainly because you won't see a…

Read more »

data analyze research
Stocks for Beginners

The 3 Top-Performing TSX Stocks in November 2023 (Are They Still Buys?)

These TSX stocks proved to be the best of the best over the last month. But the question remains as…

Read more »

railroad with nature background
Dividend Stocks

Buy 32 Shares in This Top Dividend Stock for $701.12 in Passive Income

You could be looking at dividend stocks all wrong. Which is why it's important to be clear about what makes…

Read more »