There has been no shortage of volatility as of late for Canadian investors. Stocks across the TSX came flying back last year, many of which delivered double-digit returns to its shareholders. However, those gains have not come without extreme levels of volatility for investors.
Growth stocks have unsurprisingly felt the brunt of the market’s sporadic moves. As growth stocks tend to trade with higher valuations, expectations are understandably higher, which can create dramatic swings in stock prices.
Searching for your portfolio’s next growth stock
When a stock finds itself on a huge run, whether that’s upwards or downwards, it’s not always obvious as to what caused that performance. Oftentimes, there’s a specific announcement that can create a positive or negative trajectory. But other times, a stock may find itself on a gradual decline for months without any meaningful news, resulting in the stock trading at a significant discount from all-time highs. That’s when the difficult question of whether the stock is a value trap or value play arises.
With that in mind, I’ve reviewed three growth stocks that have found themselves trading at discounted prices. I’m bullish for the long term on two of them and have them on my own watch list right now. The third is a high-quality company in its own right, but it’s also a stock that I’d consider trimming if I was a shareholder.
Two growth stocks to buy
Investors hoping to scoop up shares of goeasy (TSX:GSY) at a discount may want to act quickly. The consumer-facing financial services provider is up close to 40% over the past five months and is now trading less than 20% below all-time highs.
The high interest rate environment initially caused shares to plummet. At one point, the growth stock was down more than 50% from highs. But even with that pullback, goeasy is nearing a market-crushing 300% return over the past five years.
With potential rate cuts around the corner, don’t miss your chance to load up on this growth stock, which rarely trades at a discount like this.
In comparison to goeasy, most Canadian investors are likely already familiar with Shopify (TSX:SHOP). It wasn’t long ago that the tech stock was the largest company on the TSX. But after dropping more than 80% from all-time highs in 2021, the stock has long since given up the top spot.
Shares have been on a tear over the past year, returning close to 100%, yet remain 50% below all-time highs.
Shopify has been both a volatile and expensive stock since just about it joined the TSX. It’s also been a market crusher as well.
If you can handle the volatility, this is a discount you’ll want to take advantage of.
One growth stock to sell
Don’t get me wrong, Constellation Software (TSX:CSU) could be an excellent long-term hold for Canadian investors. It has been in the past, and there’s a very good chance that it will continue its market-beating track record in the coming decades. But after the run that the tech stock has been on as of late, now could be an opportunistic time to unload a few shares.
The reason why I’d propose selling a few shares is to fund a purchase of a discounted growth stock with serious growth potential, like goeasy or Shopify. There are loads of Canadian growth stocks trading below all-time highs from late 2021. Constellation Software, in comparison, is up more than 50% since the beginning of 2022.
I’m not suggesting that Constellation Software shareholders sell off their entire position. But if you’ve found yourself with an overloaded watch list of cheap growth stocks, now could be a good time to sell a few shares.
