From time to time, preferably every quarter, investors should analyze the performance of the best-performing stocks and consider either adding these to their portfolios or reshuffling existing holdings. Such rebalancing periods can allow investors to retain specific pre-set allocations to given sectors or adjust to new company-specific data accordingly.
In general, top-performing stocks tend to outperform laggards over the long term. The logic is relatively simple. Companies that have performed well in the past are more likely to do so in the future, assuming the fundamental story and overall outlook for a given company remains the same.
With that in mind, let’s dive into two of the best-performing stocks from July. Here’s why I think investors may still have a decent entry point to get into these stocks right now.
Constellation Software (TSX:CSU) is a Toronto-based vertical software holding company I’ve touted as a strong buy in the past. Looking at the company’s long-term chart, it appears such a view has been fully validated by the market.
As of June, Constellation shareholders have nearly tripled their investments over the last five years. This includes, among other factors, a 14% growth in the company’s earnings per share and a 21% share price increase in the aforementioned time. This capital appreciation has been driven by a growth-by-acquisition strategy, which has proved to be lucrative over the long term.
In mid-July, Constellation’s Perseus Group signed an agreement with Black Knight and Intercontinental Exchange to purchase the former’s Optimal Blue business. It is one of the most widely used platforms in the mortgage industry and will enable the Canadian software giant to further strengthen its position in the market.
Furthermore, the company posted a strong performance in the first quarter (Q1) of 2023. It had a 34% revenue growth from last year’s previous quarter, with the figures reaching US$1,919 million. The cash flow from operations also increased to US$632 million from Q1 2022’s US$498 million.
Fairfax Financial Holdings
Fairfax Financial Holdings (TSX:FFH) provides property, casualty insurance, and investment management services. Apart from its home country, this company operates in the United States of America, Asia, and other parts of the world.
Like Constellation, Fairfax has grown over time mainly via acquisitions. Most recently, Fairfax has partnered up with Kennedy-Wilson Holdings Inc. to acquire almost 95% of the loan portfolio of Pacific Western Bank.
As per the company’s chairman and chief executive officer Prem Watsa, this move will help strengthen the company’s foundation of interest and dividend-income-generating assets. Notably, CSU shares have increased approximately 150% over the past three years, comparable to the returns provided by Constellation. Thus, as far as a growth portfolio is concerned, these two stocks certainly make a case based on historical performance at the very least.
Constellation reported strong Q1 2023 results, with the company’s net earnings coming in at US$1,250 million, a significant rise from last year’s US$588.7 million. It also had an operating income worth US$1,309.3 million, which shows the organization’s improving financial standpoint.
Both companies have strong financials as well as growth prospects which are capable of generating lucrative shareholder returns. Thus, investors looking for long-term capital appreciation should definitely add these stocks to their portfolios.