Canadian Growth Stocks: Can They Withstand the Pressure of Rising Rates?

Here are two of the top Canadian growth stocks long-term investors betting on a Fed pivot should consider right now.

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With the Bank of Canada’s policy interest rate rising to 5%, investors and consumers are starting to feel the impacts of these rising rates. Loan availability is down, as banks have tightened their lending standards. And companies seeking financing are often finding that debt markets are rather expensive right now. For high-growth stocks, that’s not a great thing.

Some investors are considering shifting to bonds, which provide better returns in these market conditions. But does that mean all growth stocks are going to fall? And if the Federal Reserve does pivot (with the Bank of Canada likely to follow suit), doesn’t it make sense to get ahead of the curve and buy some of these stocks right now?

Let’s dive in.

Shopify

Shopify (TSX:SHOP) is a Canadian e-commerce giant with a strong market presence in the U.S., Latin America, Europe, Africa, the Middle East, and Asia Pacific. This company recently reported strong financial performance in the third quarter (Q3) of 2023 following record Black Friday sales. This, alongside bullishness around a potential Fed pivot, has led Shopify toward a new 52-week high.

The company saw an impressive 25% increase in its total revenue this past quarter. This number hit US$1.7 billion, implying 30% year-over-year growth. Its monthly recurring revenue and merchant solutions revenue also increased by 32% and 24% in comparison to last year, reaching US$141 million and US$1.2 billion, respectively. 

Additionally, Shopify has established a global partnership with WPP. Both companies will join forces to develop products and pair their platform and commercial networks. This will help their clients’ brands scale their business and expand their customer base. Shopify has also launched a retail plan. This is a new pricing plan for its brick-and-mortar stores to build an online presence using Shopify’s POS Pro features.

For those looking for a long-term growth stock to play this recent Fed pivot catalyst, Shopify is certainly a top Canadian option.

Lightspeed Commerce

Lightspeed Commerce (TSX:LSPD) is an international software-as-a-service platform. It provides payment and cloud-based software solutions to a wide array of businesses. In its most recent quarterly report, Lightspeed reported 25% total year-over-year revenue growth. That’s impressive, considering the rather constrained environment payments companies are in right now. 

Notably, Lightspeed’s gross payment and gross transaction volumes also increased by US$5.9 billion and US$23.5 billion, translating to 59% and 26% growth from the previous year. Additionally, the company’s subscription and transaction-based revenue appreciated by 24% from last year’s same quarter. 

Another key catalyst for Lightspeed comes in the form of its artificial intelligence (AI) ambitions. The company has released a wide array of features on its platform to streamline operations for merchants. These include AI-based menu creation options, self-serve assortment planning, etc., which can help clients automate and simplify numerous tasks, enabling them to focus on scaling their business and expanding their customer base. 

Bottom line

Both Shopify and Lightspeed Commerce have strong business plans in action which can facilitate long-term growth. Thus, growth investors can buy these two stocks to ride through the period of rising interest rates and book hefty profits down the line. Indeed, if interest rates decline, these stocks could be big winners in 2024 and beyond.

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 Chris MacDonald has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Shopify. The Motley Fool recommends Lightspeed Commerce. The Motley Fool has a disclosure policy.

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