The Silver Lining of Bear Markets: Opportunities for Long-Term Canadian Investors

Long-term Canadian investors should embrace bear markets as opportunities to buy quality stocks at discounts.

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Market corrections can be uncomfortable for investors, especially for new investors. We last experienced a bear market, a decline of at least 20% in the market, during the pandemic in 2020. A silver lining of that bear market is that those who shopped at the bottom resulted in price gains of north of 60% in a couple of years. In other words, bear markets typically turn out to be great buying opportunities for long-term Canadian investors.

What does it mean to be a long-term investor? It means buying shares of solid businesses when stock prices are down. It means investing money you don’t need for a long time, which allows you to have a long-term investment horizon, as required of stocks. Of course, some investors end up profiting from their investments sooner than multiple years, but the shorter their holding period, the more they rely on luck.

Buying during bear markets can do wonders. The below graph illustrates a couple of top TSX stocks that are driven by wonderful businesses and how much they have outperformed the Canadian stock market since the bear market bottom in late March 2020.

XIU Total Return Level Chart

XIU, CSU, and ATD Total Return Level data by YCharts

Constellation Software

Constellation Software (TSX:CSU) has delivered unbelievable returns in the long run. For example, its 10-year total returns were about 1,620% compared to the Canadian stock market’s return of about 112%.

In a rare occurrence, the top Canadian tech stock corrected roughly 20% during the 2020 pandemic bear market. Even then, at the bottom, the stock still traded at about 30 times earnings. If investors avoided the quality stock because it appeared to be pricey, they would have been dead wrong! Since the bottom, it has delivered incredible annualized returns of north of 34% per year! At $3,184 per share at writing, it trades at close to 38 times earnings.

Despite the high multiple, it would be unwise to bet against the stock today, given its excellent execution over many years. In fact, investors should consider accumulating shares on dips. Interested investors can invest amounts that make sense for them by buying partial shares through commission-free platform Wealthsimple.

Alimentation Couche-Tard

The 10-year total returns of Alimentation Couche-Tard (TSX:ATD) were about 585%, which still greatly outperformed the market. During the pandemic selloff, the stock of the global convenience store consolidator lost as much as 28% of its value from peak to trough. At the bottom, the stock traded at a price-to-earnings ratio (P/E) of about 12.2.

Since the bottom, it has delivered amazing annualized returns of over 27% per year! At $78.85 per share at writing, it trades at a reasonable P/E of 18.6, given its ability to grow profits and cash flow, which have, in turn, driven outsized dividend growth in the long run.

Bottom line

Both Constellation Software and Alimentation Couche-Tard are trading near their 52-week highs. Usually, persistent stock price growth is a good sign of a wonderful stock.

It’d be sheer luck to buy at the exact bottom of a bear market. The good thing is investors only need to buy at a low to make good money in the long run. That’s what investors should aim for — accumulating shares of wonderful businesses at discounts during market corrections.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Kay Ng has positions in Alimentation Couche-Tard. The Motley Fool has positions in and recommends Alimentation Couche-Tard. The Motley Fool recommends Constellation Software. The Motley Fool has a disclosure policy.

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