Investing in stocks with strong potential for growth could help investors create significant wealth in the long term. With this backdrop, let’s look at two TSX stocks that could help set you up for life.
But before discussing stocks, it’s important to highlight that investors should focus on diversifying their portfolio to reduce risk and must not invest all of their savings in one or two stocks. Let’s delve into the stocks.
Shopify
Investing in stocks with solid fundamentals and exposure to sectors with secular tailwinds can help investors leverage the power of compounding and build considerable wealth over time. Shopify (TSX:SHOP) is one such stock that has the potential to set you up for life.
Shares of this Canadian tech company have lost substantial value from the pandemic-led highs. Moreover, SHOP stock fell nearly 24% since it released its first-quarter financial results on May 8, due to the near-term growth concerns.
The correction in its price provides an excellent opportunity to buy SHOP stock at a discounted valuation and gain exposure to secular trends like digitization. While short-term growth concerns could keep Shopify volatile, its dominant positioning in the e-commerce space, diverse offerings such as payment processing, marketing tools, shipping solutions, and geographic expansion position it well to capitalize on the structural shift in selling models toward omnichannel platforms.
The increased adoption of its products, higher penetration of Shopify Payments (which will provide cross-selling opportunities), and integration of artificial intelligence (AI) in its offerings position it well to generate solid growth. In addition, the company’s focus on cost-reduction measures and ongoing transition towards an asset-light business model set the base for profitable growth in the future.
Given the recent correction, Shopify stock is trading at the next 12-month enterprise value-to-sales multiple of 8.1, which is much below its historical average. This implies that Shopify stock offers solid growth prospects and is undervalued near the current levels.
goeasy
goeasy (TSX:GSY) is a must-have stock for investors seeking above-average returns and solid dividend income. This financial services company provides loans and leasing services to subprime borrowers. What stands out is that goeasy’s revenue and EPS sport a compound annual growth rate of 20% and 32%, respectively, in the past five years.
Thanks to its robust financial performance, goeasy stock has gained around 296% in the past five years, significantly beating the broader market averages. Moreover, it has delivered a more than 1,100% return in the past decade. Besides capital gains, goeasy’s dividends sport very high growth, indicating the company’s commitment to return higher cash to its shareholders.
A large subprime lending market, goeasy’s strong competitive positioning, omnichannel offerings, and diversified funding sources will drive its loan portfolio and overall revenue. As the momentum in goeasy’s top line will likely be sustained, the company’s bottom line could benefit from operating leverage and prudent risk-management practices, resulting in steady credit and payment performance.
While goeasy is poised to deliver solid financials, its share price looks compelling near the current price levels. It is trading at the next 12-month price-to-earnings multiple of 10, which appears undervalued considering its EPS CAGR of over 30% and a dividend yield of more than 2.6%.
