Investing in stocks has an incredible potential to build outsized wealth. Investing in the stock market is asymmetric. The most you can lose is 100%. However, the amount you can gain is limitless. Many stocks have multiplied shareholder capital by more than 100 times.
Stocks have unlimited potential
The best way to offset a potential 100% loss (because no stock is risk-free) is to diversify with a mix of stocks in a diverse array of sectors and industries. By diversifying your portfolio, you spread out your bets and keep the odds of success in your favour.
If you are looking for some stocks with attractive risk adjusted return potential, here are two top performing Canadian tech stocks. These stocks have made many millionaires. They are likely to keep delivering for shareholders in the future.
Constellation Software: A top performing tech company in North America
Constellation Software (TSX:CSU) should be near the top of this list. Not many stocks have delivered such substantial returns in such a short period of time. Since its initial public offering (IPO) in 2006, Constellation stock has risen 20,612%!
In that time, Constellation has handily outperformed tech giants like Microsoft, Amazon.com, and Alphabet. Yet, most consumers have never even heard of it. In reality, Constellation is actually a portfolio of over 1,000 niche software businesses (kind of like its name).
Constellation focuses on acquiring specialized software companies all around the world. Its portfolio is attractive because it is extremely diversified and economically resilient. In many instances, its software is essential, difficult to replace, and hard to switch.
Constellation earns a stable stream of growing recurring revenues. Likewise, the company still has a wide opportunity to keep acquiring software businesses at high rates of return.
Another catalyst for shareholders is the potential for spinouts. It has made two spinouts (Topicus.com and Lumine) in the past couple of years. Already those stocks have delivered significant value for Constellation and its shareholders. Given their smaller base, these spin-out stocks could also be great long-term bets in the technology sector.
Descartes Systems: A crucial tech stock gushing cash
Another stock that has delivered for investors is Descartes Systems (TSX:DSG). This stock is up 9,229% over the past 20 years. Certainly, its returns don’t match Constellation. However, a 25% compounded annual growth rate over that time is still pretty good.
Like Constellation, Descartes is a crucial technology provider. Unlike Constellation, it is focused on one sector: transportation and logistics. Descartes operates an essential logistics network that connects all facets of the global supply chain. Alongside this, it offers a collection of software solutions that help transport businesses be more efficient and save money.
Once a business adopts Descartes’ platform, it is very sticky. Descartes has delivered solid organic growth. However, smart acquisitions have really moved the needle for this business over time.
This tech stock is very profitable, and it generates a lot of excess cash. Right now, it has a big pile of net cash, so it has flexibility if more acquisition opportunities arise.
For a stable, highly profitable, and growing company to hold long term, Descartes is an excellent pick. The only issue today is that it is a very pricey stock. It might be best to wait for a decent pullback to add it to your portfolio.
