The best growth stocks for the long term are not always the ones growing the fastest. Rather, it is the stocks that are steadily growing and consistently creating value for shareholders. These companies tend to be focused on high returns on equity or invested capital.
They don’t grow just to be larger. Instead, they grow to be more profitable and to compound total returns for shareholders. If you are looking for some forever-hold growth stocks, here are three to buy in Canada today.
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A top Canadian compounder
Constellation Software (TSX:CSU) has to be at the top of the list. Its stock is up 245% in the past five years and 1,263% in the past 10 years. CSU has made many investors millionaires since its initial public offering (IPO) in 2006.
Constellation’s secret sauce has been its concentrated focus on earning high returns on invested capital. It has been consolidating niche vertical market software (VMS) businesses because these companies are cheap, economically resilient, and cash-generative.
Despite being a nearly $100 billion company today, the company still has a substantial market to consolidate. Spinouts continue to be an attractive catalyst for growing additional mini-Constellations.
Even if returns moderate to an extent, investors should still do very well from holding this stock for the long run. This stock is not cheap after a 43% increase in 2024, but any pullback would be a great opportunity to add to your position.
An up-and-coming software stock
VitalHub (TSX:VHI) is like Constellation Software, but 15 years ago. VitalHub only has a market cap of $611 million (even after rising 183% this year). It could still grow substantially larger.
The health tech provides specialized software solutions to the healthcare industry. These include patient flow, operational management, case management, care coordination, and employee management. The company has grown by acquiring software. Over the years, it has significantly diversified its product suite and geographic exposure.
Overwhelmed healthcare systems are in dire need of efficiency and optimization solutions. Many healthcare systems still use antiquated systems that are ripe to be digitized. That tailwind could fuel years and even decades of growth for a company like VitalHub.
VitalHub has a strong balance sheet and firepower for more acquisitions. As it scales, it generates higher margins and a growing stream of free cash flow. Like Constellation, VitalHub is not cheap after its strong run-up. However, if it has any pullback, it could be a worthwhile stock to add for the long term.
This stock has excellent capital allocation
TerraVest Industries (TSX:TVK) is another stock you might want to hold for years ahead. Like the other stocks above, it has had a very nice run-up in 2024. TVK stock is up 168% in the year.
The stock has risen because it was extremely cheap a year ago. Management has executed very well and the market has rewarded it.
TerraVest operates some very boring, niche industrial and energy businesses. These are hardly exciting. However, its expertise has been buying cheap industrial businesses, unlocking synergies inside its larger portfolio, and then reaping the cash flows for more acquisitions.
It has a young CEO and an invested board/management team. If it continues to execute its acquisition strategy, there could be significant upside in the years ahead.
