This current market is one that many believe isn’t necessarily running on fundamentals alone. Indeed, the monetary policies put forward by the Federal Reserve in the U.S. and the Bank of Canada north of the border have certainly shaped the risk appetite of investors. In rising interest rate environments, many have soured on the idea of owning equities. But as interest rates come down, that narrative is beginning to shift.
Much of this has to do with the idea that a so-called “soft landing” could be in the cards this year. Let’s dive into why this certainly could be the case, and which three growth stocks could benefit most from continuing declines in interest rates moving forward.
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Boyd Group
Boyd Group (TSX: BYD) is one of Canada’s largest automotive repair companies. It’s also a stock I’ve touted for a long time, due in part to the company’s strong long-term performance, as noted in its stock chart below.
The company’s valuation has remained relatively stable through its recent ascent over the past decade, meaning its growth rate has been maintained (and accelerated over certain periods) as Boyd’s management team sourced more acquisitions and expanded into new markets.
This growth-by-acquisition strategy has paid off well in terms of cash flows. The company’s net income this past quarter did decline on a year-over-year basis, but it predicts its earnings will grow at a relatively steady 50% annualized rate moving forward. The recent dip in Boyd’s stock price reflects market concerns over these lofty goals.
That said, I do think the long-term secular growth tailwinds behind this company sets Boyd up well for continued earnings growth over the long term, particularly as the company continues to improve its efficiency over time.
Constellation Software
Constellation Software (TSX: CSU), one of the largest tech companies in Canada, develops and customizes software for public and private sector banks. Notably, Constellation also has a growth-by-acquistiion model, managing and acquiring vertical software firms around the world.
Constellation Software is a great choice for investors seeking a high-growth tech company. The company has provided more than 22,000% in share price gains since its IPO and continues to deliver impressive returns to shareholders. This growth has been fundamentally driven as well. High earnings growth coupled with a relatively low beta of 0.81 (signalling less correlation to the overall markets) means this is a stock that’s much more defensive than other high-growth peers.
For a company that’s this large and grows this fast, that’s impressive in my books. Constellation remains a top growth stock I’m bullish on over the long term.
WELL Health Technologies
WELL Health Technologies (TSX: WELL) owns and operates a practitioner-focused digital healthcare company in Canada and the U.S. The company’s focus on providing telemedicine services to its clientele led to impressive performance following the pandemic, which has steadied out in recent years.
Much of this recent share price performance gap can be tied back to the high growth hurdles the market previously set for WELL stock. Like other pandemic darlings, growth expectations have come down, as has the company’s valuation.
That said, on a fundamental basis, WELL has continued to perform well. The company’s adjusted EBITDA and earnings per share have grown by 8.7% and 8.3%, respectively, over the past year. And it’s worth noting that these growth numbers come in the face of rising demand for virtual services and digital patient records in its core markets, where healthcare software usage has become more prevalent.
Over the long term, many growth investors continue to view this company as a key player in a high-growth market worth considering on dips. I’m one such investor, who believes in the company’s long-term ambitions. And with the company venturing into the physical space as well, with the recent purchase of 10 clinics from Shoppers Drug Mart in British Columbia and Ontario in June 2024, there’s a lot to like about its multi-channel strategy moving forward. I think this could be a sneaky winner heading into the next bull market.
