With the Canadian stock market hovering near record highs — up roughly 21% over the past year and more than 50% in the past three — investors are finding it increasingly difficult to uncover bargains. Valuations are stretched, and many high-quality names have already priced in a lot of optimism.
But even in a strong market, opportunities appear when great companies face temporary setbacks. If you have $1,000 to invest and want safer Canadian stocks with long-term upside, two names stand out: Constellation Software (TSX:CSU) and Canadian National Railway (TSX:CNR).
1. Constellation Software: A rare discount on a Canadian growth giant
It’s not often that investors get a chance to buy Constellation Software at a discount. The stock has pulled back about 17% over the past year and sits nearly 33% below its 52-week high — a rare dip for one of the best-performing companies in Canadian history.
Despite this correction, Constellation’s long-term track record remains stellar. Over the past five years, the stock has been up about 182%, and over 10 years, it has compounded investors’ wealth at roughly 23% annually, turning a $10,000 investment into nearly $79,000.
Constellation’s edge lies in its acquisition-driven business model. The company specializes in buying and managing vertical market software (VMS) businesses — firms that provide mission-critical software to niche industries such as healthcare, utilities, and public services. These acquisitions create steady recurring revenue streams, while Constellation’s management excels at improving margins and reinvesting profits for further growth.
Over the past decade, Constellation has maintained an average and median return on equity (ROE) of around 42%, reflecting exceptional capital efficiency.
At about $3,541 per share, analysts’ consensus price targets suggest the stock could be trading at a 35% discount to fair value. For investors seeking a growth powerhouse with decades of proven execution, this dip looks like an excellent entry point.
Although the stock is over $1,000, investors could buy partial positions on trading platforms like Wealthsimple.
2. Canadian National Railway: A blue-chip dividend stock on sale
Another name worth buying on weakness is Canadian National Railway. The transportation giant’s stock has lagged the broader market, down roughly 15% over the past year and 19% over three years. Yet, these declines represent a long-term investing opportunity.
At under $131 per share at writing, CN Rail trades at a blended price-to-earnings (P/E) ratio of 17.8, which is more than 15% below its historical norm.
While headwinds have kept earnings growth flat since 2022, the long-term story remains intact.
CN Rail has raised its dividend for 29 consecutive years, a testament to its financial resilience and disciplined management. Although the most recent hike was 5%, below its usual roughly 10% level, this moderation reflects temporary challenges rather than a structural decline. The stock currently yields a solid 2.7%, offering investors steady income while they wait for growth to rebound.
Once economic conditions normalize, CN Rail could realistically deliver 10-15% annualized upside over the next few years, on top of dividend income.
The investor takeaway
Both Constellation Software and Canadian National Railway represent rare cases of high-quality Canadian stocks trading below their typical valuations. They offer a compelling mix of safety, profitability, and long-term growth potential.
For long-term investors who can stomach risk, investing $1,000 in these two discounted, proven businesses today could lead to strong returns in the years ahead.
