For those looking to take advantage of the tax benefits the Tax Free Savings Account (TFSA) offers Canadian investors, this article is for you. Finding the right growth stocks to put into such a fund is important, because all future capital gains are tax free, for investors who put capital to work and watch it grow.
Unlike other retirement accounts, such as the Registered Retirement Savings Plan (RRSP), where gains are taxed at an individual’s corresponding tax rate in retirement, these tax free gains can be substantial for investments that have surged over a long period of time.
Accordingly, finding the right long-term growth stocks to put into such a portfolio is important. Here’s why I think these two stocks are worth considering in this context.
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Constellation Software
Finding growth stocks with the potential to outperform over the long run isn’t easy. There’s always the option of looking for the “next big thing.” However, such companies are hard to find, and few and far between.
Investors may have better luck locating companies with a proven track record of growth they think can keep the pace up for the next decade or two. Constellation Software (TSX:CSU) is one such company, in my view.
The Canadian tech giant specializes in developing customizable software for private and public sector institutions. The company acquires, builds, and manages vertical-specific businesses.
Since its incorporation in 2006, Constellation Software has proven to be a huge success for Canadian investors, showing capital appreciation of approximately 19,680% over this period. This performance makes Constellation Software one of the best Canadian growth stocks, proving it a beneficial long-term option for such investors.
Notably, Constellation Software’s recently released financials for the first quarter of 2024 highlighted its strong growth profile. Revenue increased by 23% to $2.4 billion, while net income attributable to common shareholders came in at $105 million. Both numbers represented a significant rise year over year. Furthermore, its earnings per share increased to US$4.95, and its profit margin was 4.5%.
For those seeking a software company with a strong long-term outlook, Constellation Software remains among the top picks in my book right now.
Shopify
Among the largest e-commerce plays Canada has to offer, Shopify (TSX:SHOP) is another top stock I’ve pounded the table on for some time.
That’s partly because the company’s e-commerce platform, allowing small and medium-sized businesses to set up online shops, could be the future of commerce. The company’s subscription-focused business model benefits from long-term growth in the e-commerce space. So, as more companies set up online stores using Shopify’s platform, the company stands to benefit from broader economic trends.
Thus, those bullish on the future of global commerce shifting toward a Shopify-driven model have a lot to like about where this company is headed. Shopify’s financials also paint a rather rosy picture in this regard. During the last quarter of 2023, the company reported a 31% rise in subscription services revenue. This drove a 25% overall top-line increase, and this growth rate is one that looks relatively sustainable, now that the post-pandemic comps are behind us.
Of course, risks abound with both holdings over near-term timeframes. But over the long term, these are two companies with secular growth catalysts I think will bode well for those with a long-term investing time horizon.
