As you look to buy high-quality stocks that you can hold for the long haul, it’s essential to build a balanced portfolio with plenty of diversification. That means owning stocks in different industries, investing in businesses with operations in different parts of the world, and having a good balance of high-potential growth stocks as well as more defensive and resilient dividend stocks.
While every stock you buy for your portfolio should be a high-quality investment, and each stock is certainly important, there’s no question that the stocks that can have the biggest impact on your success are growth stocks, especially while they trade this cheaply.
When you find a high-quality growth stock with significant potential, it can help boost your portfolio’s growth significantly. For example, when Shopify first went public in 2015, it had a tonne of potential and was growing rapidly. From the time it went public in 2015 to the start of 2021, Shopify earned investors a total return of 4,500%.
That means an investment of just $5,000 in May 2015 would have been worth roughly $230,000 by 2021. Even if that $5,000 was just 5% of your portfolio and none of your other stocks gained or lost any money, you would have more than doubled your portfolio’s value over that five-and-a-half-year stretch, thanks to one high-performing growth stock.
Of course, Shopify is one of the more successful growth stocks in recent history, but this example is meant to illustrate the potential gains investors can make when they find a high-quality growth stock to buy and hold for the long term.
When growth stocks trade cheaply, investors have a massive buying opportunity
In addition to the quality of the growth stock, though, buying these companies undervalued is also key. That’s why this environment has created a once-in-a-decade opportunity for investors to buy these high-potential companies.
Since many growth stocks already have significant capital gains potential, buying them while they trade undervalued can significantly amplify your potential returns.
For example, Dollarama, one of the best long-term growth stocks in Canada, is a company that, although over the long run, has consistently grown its operations and stock price, in the near term, it naturally experiences market volatility.
Back at the start of September 2018, it was trading for roughly $49 a share, then began to decline in price. By the start of January 2019, the stock’s price had declined to roughly $32, giving investors a significant buying opportunity, similar to what we’re seeing today. By August of 2019, though, the price had recovered to $49.
Now, if you had invested in Dollarama at the start of January when it was trading cheaply, you would have earned a total return of more than 210%, holding the stock until today, a compounded annual growth rate (CAGR) of 26% in the nearly five years.
However, if you didn’t happen to buy Dollarama at a discount and bought it in August after it had recovered, you still would have made an impressive return with your investment growing at a CAGR of 17.9% over that stretch, thanks to Dollarama’s impressive performance.
However, the total return you would have made of just 103% is less than half of the potential 210% return you could have made buying it while it was undervalued.
One of the top Canadian stocks to buy now
Considering how many high-potential growth stocks are trading undervalued in this environment, investors have a once-in-a-decade opportunity today. One of the best stocks to consider now is Aritzia (TSX:ATZ), especially while it trades more than 50% below its 52-week high.
Aritzia is a rapidly growing women’s fashion retailer that has seen its sales and profitability skyrocket over the last five years.
After rapidly expanding across Canada, Aritzia is now seeing a tonne of sales growth thanks to its e-commerce platform, which has driven rapidly growing demand south of the border, where the company is now opening the majority of its new stores.
Due to macroeconomic headwinds, though, Aritzia is temporarily seeing its operations and margins impacted, which has caused the stock to trade dirt cheap.
So, if you’re looking to take advantage of the current market environment, Aritzia is one of many high-quality growth stocks that you’ll want to buy soon.