Written by Chris MacDonald at The Motley Fool Canada
When the market dips, it is an excellent time for investors to add high-quality growth stocks to their portfolios. That’s mostly because companies with higher-than-average growth rates tend to outperform when their valuations begin to factor in slower to no growth scenarios.
Of course, perhaps such scenarios ought to be factored in right now. After all, we could be staring down the barrel of a recession, and given the economic uncertainty around higher interest rates and high inflation, there’s plenty of cause for concern right now.
That said, long-term investors looking to invest in growth at more reasonable prices may want to put these two stocks on their watch list.
Constellation Software (TSX:CSU) is an international provider of industry-specific and mission-critical software. Apart from Canada, the company operates in the U.S., the U.K., and the rest of Europe.
Constellation’s long-term performance is incredible. One only needs to zoom out on the stock chart above to see what I mean. Over the past five years, the company’s earnings grew by 14% each year, driving share price appreciation of approximately 160%.
The company’s recent second-quarter (Q2) 2023 earnings showed a continuation of this trend. Constellation increased its revenue to US$2.04 billion in comparison to last year’s US$1.62 billion. Cash flow from operations also appreciated by 58%, reaching US$123 million.
Additionally, almost 40% of Constellation’s shares are held by institutional investors. This is excellent news for investors, as such entities purchase only stocks with strong growth potential and tend to hold them for the very long term.
Shopify (TSX:SHOP) is a Canadian international e-commerce platform which allows merchants to manage, market, and sell their products from both physical and digital locations. Recently, Shopify signed an agreement with Amazon to integrate the “Buy with Prime” option on its platform.
This facility will only be available to merchants in the United States, providing them the ability to facilitate lightning-fast deliveries to their customers. Furthermore, Shopify integrated several new features in order to streamline business operations for its merchants.
For instance, Shopify Collective allows businesses to buy products from other brands present on the platform and send them directly to their customers. There is also Shopify Credit, which acts like a business credit card for merchants, providing cashback in product categories with the highest spending.
These new initiatives, as well as strong organic growth in Shopify’s key markets, led to excellent results in the company’s second quarter. Shopify reported revenue growth of 31% in the quarter, hauling in US$1.7 billion. Even more impressive, the company’s gross merchandise volume came in at US$55 billion, which is a 17% rise from last year’s figures.
Overall, I think Shopify’s long-term prospects remain strong, with the company likely to continue to grow at a relatively rapid pace moving forward. Relative is the important word here — it’s still unclear whether the market will reward Shopify for its market share growth and other metrics or if it will continue to decline alongside hyper-growth stocks. In my view, such declines are a buying opportunity in the near term.
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John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Fool contributor Chris MacDonald has positions in Amazon.com. The Motley Fool has positions in and recommends Shopify. The Motley Fool recommends Amazon.com and Constellation Software. The Motley Fool has a disclosure policy.