September is upon us, and so is increased stock market volatility for TSX stocks. The TSX Index saw one of its largest single-day declines of the year on Tuesday.
September is traditionally a bumpy month for stocks. With the economy weakening to an extent, further market volatility is to be expected in the back half of the year.
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Accelerate your returns by buying high-quality TSX stocks on pullbacks
However, market pullbacks can be your long-term friend. When the entire market draws down, it also pulls down the price of great quality, high-performing stocks. When it does that, you can create new positions or add to current ones at better valuations.
By buying on market dips, you can accelerate your longer-term return profile. Here are two TSX stocks to pick up on dips and then hold for years and years beyond.
A top TSX software stock
Descartes Systems (TSX: DSG) has been an exceptional compounder for many years on the TSX. Its stock is up 786% in the past 10 years. It has delivered an excellent 24% compounded annual rate of return over that time. It is up 24% in 2024.
Descartes operates the world’s largest logistics network. It complements this with a wide mix of software services catered to the transport, supply chain, and logistics industries.
This industry has been slow to adopt technology. However, with a fast-changing supply chain and geopolitical environment, demand for its services should continue to swell.
This TSX stock just reported very strong second-quarter results. Revenues grew by 14%, adjusted earnings before interest, tax, depreciation, and amortization (EBITDA) rose 17%, and earnings per share increased 25%.
The company has delivered consistently solid results for years. Descartes is extremely profitable, has a great cash-rich balance sheet, and has ample opportunity to grow organically and by acquisition.
The biggest problem is valuation. Descartes trades for 50 times earns and with an enterprise value (EV)-to-EBITDA ratio of 28. This TSX stock has everything to like but the valuation, so it is wise to add it on a decent pullback.
A top Canadian compounder
Another long-term stock to add on any serious pullback is Constellation Software (TSX: CSU). Where Descartes has focused on a specific software vertical (logistics), Constellation casts a much wider net.
Constellation consolidates small, niche software businesses in an array of sectors and industries all around the world. Today, it has over 900 businesses in its portfolio. It generates a lot of spare cash that it puts into acquiring more businesses.
This TSX stock has delivered market-leading returns. Its stock is up 1,459% in the past 10 years for a 31% compounded annual return. It is up 29% year to date.
The company has an exceptional group of managers, recession-resilient assets, and a large market to keep consolidating. However, it trades at 37 times earnings and an EV-to-EBITDA ratio of 23 times.
This business has never been cheap. Fortunately, it pulls back 5-10% periodically. That can be a great time to build or add to a position in this quality TSX stock.
