Quality stocks can help investors create game-changing returns for long-term shareholders. You basically need to identify a portfolio of companies that are positioned to grow their earnings at a steady pace each year, resulting in a higher valuation over time.
Here are three of the best Canadian stocks I plan to hold forever.
Shopify stock
Valued at $138 billion by market cap, Shopify (TSX:SHOP) stock is a Canada-based company trading 50% below all-time highs. Despite the pullback, the TSX tech stock has returned over 3,000% to shareholders since its initial public offering, or IPO, in 2015.
In the last two years, Shopify has trimmed its workforce and exited the capital-intensive fulfillment centre business to expand its profit margins amid a challenging macro backdrop. While Shopify stock is priced at a steep forward price to earnings multiple of more than 100 times, it is forecast to increase adjusted earnings by 278% annually through 2028.
Part of the expanding e-commerce market, Shopify offers a portfolio of digitally-powered products and solutions to more than two million merchants. It is the second largest e-commerce platform in the U.S. after Amazon.
Due to robust customer engagement and retention rates, Shopify is on track to increase sales from $7.5 billion in 2022 to $11.3 billion in 2024.
Shopify is a high-flying growth stock that trades at a premium. But its improving profit margins, strong competitive moat, and solid revenue growth should allow SHOP stock to beat the market in the upcoming decade.
Constellation Software stock
Another TSX tech stock on the list is Constellation Software (TSX:CSU), which has returned 1,500% since January 2014. Constellation Software owns, acquires, and operates a portfolio of highly profitable tech companies that offer mission-critical solutions to enterprises.
As the services are part of a niche market, CSU benefits from high switching costs and solid customer retention rates.
Despite its outsized gains, CSU stock is priced at 45 times forward earnings, which might seem expensive. But analysts expect earnings to grow by 40% annually through 2028.
Magna International stock
The final TSX stock on my list is Magna International (TSX:MG), a company that operates in the automobile sector. Valued at $21 billion by market cap, Magna International designs and manufactures components, assemblies, systems, subsystems, and modules for original equipment manufacturers of vehicles and light trucks globally.
After gaining solid traction among legacy automobile manufacturers, Magna International is targeting the electric vehicle segment, unlocking billions of dollars in sales in the next two decades.
For instance, it is a major supplier of battery enclosures for Ford’s electric vehicles and is also a key supplier to BMW Group, Stellantis, and Fisker.
Magna International forecasts adjusted earnings to range between US$1.55 billion and US$1.65 billion in 2023. So, priced at 11 times forward earnings, Magna International stock is very cheap and trades at a discount of 40% to consensus price target estimates.
Moreover, the drawdown in Magna International stock has increased its dividend yield to more than 3%. The company has increased its dividends by more than 15% annually in the last 10 years, which is very impressive.
