Investors who have tilted their portfolios much more heavily toward growth stocks over the past two decades have undoubtedly outperformed those who have stuck with value-first investing strategies over this time frame. Indeed, given that our economy is now very tech-heavy, companies that continue to drive considerable growth tend to operate in this sector.
That said, for investors seeking sustainable long-term growth, I’ve got two picks (one tech-related company and one from a completely different sector) that I think are worth looking at. Here’s why I think these two growth stocks may make for great long-term buy-and-hold picks right now.
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Constellation Software
Constellation Software (TSX: CSU) has grown to become a major contender in the global software market. The Canada-based company has consistently and effectively consolidated the fragmented software space, seeing incredible capital appreciation over the years (see the chart below) as Constellation acquires and integrates a range of vertical market software firms into its portfolio.
The specific companies Constellation acquires span a range of sectors, including healthcare, real estate and retail. However, the commonality among these companies is that they’re often firms with under-appreciated technologies or trading at valuations the Constellation merger and acquisition (M&A) team thinks are attractive, given the value-add the company can provide to its various deals.
Over the long term, Constellation Software has continued to provide market-beating growth due to this strategy, growing revenues by an average compounded annual rate of around 30% per year since inception. That’s the kind of growth rate that may become more difficult to clear, given Constellation’s size (now trading at a market capitalization of more than $95 billion). However, given the company’s track record and prior consistency, I think this is a tech giant that can certainly continue to grow at this rate, given the sheer size of the immense opportunities that can be found within the tech sector right now.
Boyd Group Services
Boyd Group Services (TSX: BYD) is about as far from a tech stock as one can get. The company operates a range of auto body repair shops across North America under the Boyd Autobody & Glass and Gerber Collision & Glass banners.
What’s interesting is that, like Constellation Software, Boyd has continued to provide very impressive growth over the long term, following a similar growth-via-acquisition strategy. Like the software industry, the auto body business is very fragmented, with plenty of smaller family-run chains looking to sell, as the baby boomers who started these businesses have difficulty prompting their kids to continue running the businesses or find other sellers.
This means there’s a significant opportunity for companies like Boyd to take advantage of market dislocations in particular markets where Boyd is really the only game in town. This has allowed the company significant pricing power in certain markets as the company looks to corner the market in key regions and become the go-to place for automobile owners to service their vehicles.
Additionally, with the average age of vehicles on North American roads continuing to get older, Boyd is a company that may benefit from increased maintenance spending and more significant repair jobs for vehicles that require service to stay roadworthy.
Over time, I think Boyd is a company with plenty of potential to grow both organically and via acquisition. This recent dip looks like a buying opportunity to me, at least for investors with a relatively long-term investing time horizon.
