Historically, stocks have delivered higher long-term returns versus other assets classes. Wealth building is made simpler when you use commission-free trading platforms like Wealthsimple. Simply aim to save a portion of every paycheque and identify wonderful businesses to buy shares in. It’s easy to start investing when you pay no commissions for trading stocks. Wealthsimple allows you to purchase partial positions, too. If you’re afraid a stock will fall, but you want to start owning the wonderful business, you can buy small positions in it.
With diligent savings for the long haul, here are a couple of growth stocks that could help you create wealth on Wealthsimple.
Constellation Software
Constellation Software (TSX:CSU) has been one of the best-performing TSX stocks in history! It even turned early investors into millionaires! The graph below shows the transformation of an initial investment of $10,000.
CSU Total Return Level data by YCharts
Even if you just bought the stock 10 years ago, you would still have turned $10,000 into about $166,020, 7.7 times the Canadian stock market returns (using iShares S&P/TSX 60 Index ETF as a proxy), as illustrated in the below graph.
XIU and CSU Total Return Level data by YCharts
Constellation Software is much more expensive than it was 10 years ago. At writing, it costs $2,708.65 a share. Many investors cannot afford investing this much in one go. This is where Wealthsimple’s partial position buying provides value. You can buy as big or as small a position as you want. The tech stock also trades at a price-to-earnings ratio (P/E) north of 35, which is much higher than the multiple 10 years ago of north of 18, as the market recognizes the tech company’s quality and excellent execution.
It may still be worthwhile to own a position in Constellation Software as analysts believe it trades at a slight discount of about 12%, and the company is expected to continue growing at an outsized rate.
Constellation Software has created tremendous value for its shareholders. For example, its five-year return on equity is about 45%!
Canadian Pacific Kansas City
Another high P/E stock is Canadian Pacific Kansas City (TSX:CP). Although not as impressive as Constellation Software, CP stock still doubled the returns of the Canadian stock market in the last 10 years, returning a compound annual growth rate of close to 15.9% in the period.
CP’s merger with Kansas City Southern allowed it to expand its footprint into Mexico, connecting these routes with the United States and Canada. At $101.06 per share at writing, the railway stock trades at north of 26 times earnings. However, it’s expected to continue growing earnings at a double-digit rate in the long run. Currently, analysts believe it trades at a discount of about 15%.
Both Constellation Software and Canadian Pacific pay small dividend yields of less than 1%, so investors should target long-term price appreciation for wealth creation. CP has created tremendous value for its shareholders. For example, its five-year return on equity is about 26%!
Notably, during recessions, CP stock tends to experience meaningful corrections. As economists expect a higher probability of a recession in Canada by 2024, it may be smart of investors to wait for a bigger discount before pulling the trigger.
