What returns can you get from the stock market in five years? Had you invested $1,000 in the TSX Composite Index five years ago, it would be worth $1,450 by now. What if you invested this amount in Bombardier (TSX: BBD.B)? In 2019, the stock was near bankruptcy with no future in sight. It was working on a deal to offload its train business and repay $10 billion debt.
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If you invested $1,000 in different growth stocks
If you had invested $1,000 in Bombardier in November 2019, when it was trading around $51.5, your money would have grown to $1,887. This return is a little less than double but way behind the returns other resilient growth stocks gave during the same time.
Shopify shares could have grown your $1,000 to $3,768, while Descartes Systems would have grown that amount to $2,890. And had you invested a little more and bought even one share of Constellation Software (TSX: CSU) at $1,342, it would now be worth $4,492. Circling back to Bombardier, had you delayed your $1,000 investment to June 2020 (the pandemic), it would have grown to $7,649.
If you had a crystal ball and could predict this return, you would have invested in the business jet maker during its tough times. Sadly, the future is unpredictable.
Two strategies to tap the growth of growth stocks
The last four years have been a turnaround time for Bombardier, with the company desperately moving its limbs to stay afloat. In an unpredictable market, you can adopt two strategies:
- Strategy #1: Either invest in stocks for a particular reason and invest more in them during a bear market if the reason that made you bullish on the stock hasn’t changed.
- Strategy #2: Invest in resilient growth stock at any price point.
Is Bombardier stock a buy even now?
The first strategy is about stocks that are either cyclical or have a reason to be bullish. Timing is important for such stocks. A buy-the-dip stock can make a significant difference.
For Bombardier, the bullish reason was the new management takeover in 2020 and their efforts to start fresh by focusing only on the strength, which is business jets. This reason has been intact since 2020. The new management took difficult decisions and repaid US$4.5 billion in debt to strengthen the balance sheet. There was a 25:1 reverse stock split to keep the stock in the index.
Even now, there is a strong growth prospect. However, the share is trading at a higher price-to-earnings (P/E) valuation of 16.23, double its December 2023 ratio of 8.04. You could wait for a correction before buying Bombardier stock, as its ability to scale is not as fast as tech stocks.
Is Constellation Software a buy even now?
The second strategy is to buy a resilient growth stock like Constellation Software, irrespective of the price. The company is growing through the acquisition of vertical-specific software companies. It operates like a private equity firm as it requires companies and lets them operate individually. However, it is not a private equity firm as it does not sell its shares in the company. All the acquisitions it has made are accretive to Constellation’s earnings.
The company’s share price has crossed $4,000, as it has never done a stock split. Even one share is enough to triple your money in five years. I call it an alternative way of investing in the power of compounding, as it reinvests the cash flows from acquired companies to acquire new companies.
