When many investors think of the Canadian market, growth stocks may not be the first thing that comes to mind. A plethora of defensive companies with solid balance sheets in the financials, energy and commodities sectors may rightly be the first consideration such investors have.
However, I’d argue that there remain a number of top options in this realm for investors to consider. Here are two of the top high-growth Canada-based companies I think are worth considering, particularly for investors who want to balance their portfolios out with more capital appreciation upside in this current market (considering the reality that some investors may be over-indexed to defensive stocks and rightly so, right now).
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Constellation Software
As far as top growth stocks to buy are concerned, Constellation Software (TSX: CSU) certainly stands out as a long-term winner investors have benefited from owning for a very long time.
This trend is one that many bears have considered could revert at some point for a number of reasons. Constellation Software is among the most highly valued Canadian tech companies on a number of key metrics, and that hasn’t changed. The company’s business model of acquiring small- and mid-sized tech companies and rolling them into its higher-growth umbrella has worked, but at some point, growth should surely slow.
Thus far, that hasn’t been the case. Investors who want broad exposure to a number of the strong underlying trends supporting the growth of the tech sector overall continue to flock to Constellation Software as a means of gaining this exposure.
So long as there’s investor demand for high-quality tech companies that can produce meaningful cash flow growth (and a business model which rolls many of these companies up), Constellation Software will remain on my list of top buying opportunities.
Boyd Group
For investors looking outside the technology sector to find a company with solid long-term growth trends, Boyd Group (TSX: BYD) is one company I still think is relatively overlooked on the TSX.
Boyd has grown to its current market capitalization of more than $4 billion largely via acquisitions. The company’s focus, unlike that of Constellation Software, isn’t to consolidate the fragmented tech/software sector. Rather, this company focuses on acquiring mom-and-pop auto body locations (and chains). In so doing, Boyd has created one of the most robust auto repair networks in North America and is continuing to expand its presence into new regional markets over time.
This consolidation spree has led to both economies of scale and increased pricing power in many of the markets in which Boyd operates. With strong return on equity metrics and the balance sheet capacity to continue to grow via acquisition, there’s little standing in the company’s way of becoming an even more dominant player in this sector.
Of course, recessionary headwinds could impact Boyd (and Constellation, for that matter). But if consumers are increasingly strapped for cash, opting for a new vehicle may become even less of an option, meaning auto repair demand could continue to increase in the face of inflationary budget pressures elsewhere. That’s what I’m banking on, and I think this stock’s recent decline is one that could be a dip worth buying.
