A bull market in stocks is coming. I can’t tell you when it will be, how long it will last, or how high it will go, but I can tell you that a bull market will arrive sooner or later. Historically, stocks have tended to go up and down frequently. Occasionally, they have gone down for long periods of time. In these situations, investors have had to be patient. However, those who bought in bear markets and showed patience, have been rewarded over time.
This year, growth stocks are what’s really holding the market back. After a decade-long bull market in everything tech related, an inevitable bear market finally arrived. It was bound to happen sooner or later. However, now the valuations in tech are starting to get cheaper than they ever were before.
In this article, I’ll explore two growth stocks I’d buy and hold forever — whether the next bull market comes soon or not.
Constellation Software
Constellation Software (TSX: CSU) is a Canadian tech company founded by venture capitalist Mark Leonard. It specializes in acquiring smaller tech companies (usually $5 million to $10 million in value) and holding them long term.
This long-term holding period distinguishes CSU from other venture capital companies. Most venture capitalists operate as “funds” that hold stock in a company for a while, then sell it to others (an “exit”). Constellation Software doesn’t work like that. It operates as a corporation, not a fund. It buys companies and integrates them into its existing business structure. It doesn’t aim to sell off its assets — though there are some exceptions, like the recent spinoff of Lumine Group shares.
Constellation Software’s unorthodox strategy seems to be working out pretty well. The company’s stock has risen over 10,000% since its initial public offering (IPO) in 2006, and its earnings have grown, too. In its most recent quarter, CSU’s revenue increased 33%, its net income increased 28%, and its cash flows from operations increased 10%. A lot of that was thanks to acquisitions — if you don’t count the effect of new deals, revenue decreased 3%. However, CSU is known for paying reasonable prices for acquired companies, so we can probably call the quarter a win.
Pinduoduo
Pinduoduo (NASDAQ: PDD) is a Chinese e-commerce company that’s making a big splash in the United States. It started off as a company selling agricultural goods in China. Later it branched out into selling miscellaneous Chinese goods to the U.S. market through its app Temu. It is having a lot of success with its U.S. expansion. Last year, Temu spent several weeks at the top of the U.S. app stores, and it’s still popular today.
PDD Holdings had a pretty strong showing last quarter. In the quarter, the company’s revenue increased 65%, its operating profit increased 386%, and its net income increased 588%. It was a strong showing. PDD Holdings is spending a lot of money on ads to break into the U.S. market, but evidently not so much that it’s hurting profit growth. This is one stock I own and plan to add more to over time.
