2 Canadian Growth Stocks I’d Stash in a TSFA for the Long Run

Here’s why Canadian growth stocks such as Shopify and Topicus should be a part of your equity portfolio in 2024.

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Quality growth stocks can help investors grow significant wealth over time. Investors need to identify companies that are reporting consistent profits and are part of expanding addressable markets, allowing them to increase sales and cash flow across market cycles.

Moreover, you can hold these stocks in a TFSA (Tax-Free Savings Account) and generate tax-sheltered gains for life. The TFSA is a popular registered account in Canada that can be used to hold various qualified investments such as stocks, bonds, mutual funds, and exchange-traded funds.

Here are two Canadian growth stocks I’d stash in a TFSA right now.

Shopify stock

Valued at US$75 billion by market cap, Shopify (TSX:SHOP) stock is down 63% from all-time highs, allowing you to buy the dip. Shares fell roughly 16% in a single trading session after the Canadian e-commerce giant announced its first-quarter (Q1) results.

After adjusting for the sale of its logistics business, Shopify’s revenue grew by 29% year over year in Q1. Its exit from the low-margin business enabled Shopify to boost its gross margins from 48% to 51% in the last 12 months. Further, its cash flow margin doubled to 12%, indicating Shopify is positioned to benefit from economies of scale and operating leverage going forward.

However, investors were not impressed by the company’s forecasts for Q2, where it expects gross margins to fall below 50%. It also expects operating expenses to rise at mid-single-digit percentages in the June quarter compared to Q1.

Alternatively, Shopify’s growth story is far from over as it continues to innovate, expand its product suite, and help customers simplify their operations. It is positioned to gain significant traction in the B2B (business-to-business) vertical and several international markets.

For instance, its gross merchandise volume in the B2B market soared 130% year over year in Q1, while the metric in international markets was up 38%. International sales currently account for 30% of total sales and will be a key growth driver for Shopify.

Shopify is forecast to increase adjusted earnings from US$0.73 per share in 2023 to US$0.98 per share in 2024. Comparatively, revenue is on track to expand from US$7.06 billion to US$8.54 billion in this period. So, SHOP stock is priced at 60 times earnings, which might seem steep. But analysts expect earnings to expand by 52% annually in the next five years.

Topicus stock

Valued at $9 billion by market cap, Topicus (TSXV:TOI) is a European-based company that offers vertical market software to enterprises in the private and public sectors. It builds, acquires, and manages industry-specific software businesses that provide mission-critical and high-impact software solutions.

Despite a challenging macro environment, Topicus increased revenue by 16% and free cash flow by 32% in Q1 of 2024. Analysts expect revenue to rise from $1.66 billion in 2023 to $1.96 billion in 2024. Comparatively, adjusted earnings might grow from $1.3 per share to $2.2 per share in this period.

Priced at 52 times forward earnings, Topicus stock trades at a premium. However, its robust earnings growth should help the tech stock generate outsized gains for shareholders 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 Aditya Raghunath has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Shopify and Topicus.com. The Motley Fool has a disclosure policy.

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