It’s tough to find bright outlooks this year, with markets coming off a year with the bear in the driver’s seat. Still, whenever there’s a lot of gloom on Wall or Bay Street, investors should be ready to take a contrarian view. Being a contrarian at such a jittery time can be profoundly rewarding if you put in the analysis and pick your spots carefully.
Indeed, recessions are never easy to sail through. But on the other side of a recession lies a recovery. And those who wait for uncertainties to resolve will likely miss on most, if not all, of the swiftest gains to be had from a post-recession recovery. Indeed, sometimes it’s better not to wait things out at moments of high investor anxiety.
Now, fallen growth stocks could continue to sag for many quarters to come. That said, those with sound investment theses and plans to average down (through dollar-cost averaging, which entails buying more shares incrementally, as shares continue to dive) shouldn’t “wait for the dust to settle.”
Incredible growth plays at reasonable prices?
If you’re young and can afford to wait for a recovery, there’s no shame in reaching for the fast-falling plays you deem as undervalued. As long as you put in the homework and have some concept of intrinsic value, short-term action in a stock shouldn’t have you hitting the panic button.
Of course, it’s never easy to be contrarian amid market turbulence. And though nobody knows what’s to happen with inflation or the economy as 2023 progresses, those with time horizons beyond five to 10 years need not worry about the severity of the looming recession or other short-term factors that may be less meaningful over the long haul.
Here are two growth stocks that have a brighter outlook for the year than recent moves in their share prices suggest.
Shopify
Shopify (TSX:SHOP) is a great e-commerce firm that’s been through magnificent times (during the early days of 2020, when many thought digital retailers would take the remaining pie away from physical retailers), and some truly horrific times.
Right now, Shopify is coming off a perfect storm of terrible headwinds, with higher interest rates, high inflation, and a slowing economy. Indeed, any tailwinds and euphoria experienced in 2020 and 2021 has resulted in a massive hangover for 2022.
Fortunately, I think Shopify is closer to turning a corner than many investors think. Shopify had expectations lowered gradually in recent years. Moving forward, the company expects revenue to be in the high teens (at least for the first quarter). That’s a realistic target that I think could be easily surpassed if the recession in Canada ends up being mild.
Sure, high-teens growth is close to a low point for Shopify. However, in the long term, I think the growth rate could accelerate on the back of the next bull run.
Constellation Software
Constellation Software (TSX:CSU) is a Canadian software company that doesn’t get too much attention. The stock is at a fresh new high, and the recession doesn’t appear to have dragged down the tech titan as much as the broader market. Indeed, Constellation seems ready to move on from the bear market already.
The stock trades at a hefty 77.4 times trailing price to earnings and 31.9 times forward price to earnings. It’s not cheap, but for steady, consistent growth in a recession, I’d argue the premium is worth paying up for.
Looking back to the past 10 years and CSU stock has been a smooth ride up. Over the next 10 years, I expect more of the same for the $51.4 billion software giant that knows how to do acquisitions the right way!
