BYD:CC - Forget the Magnificent 7: Buy the Canadian Terrific 3
2024-06-29 09:45:00 ET
The so-called “Magnificent Seven” represents a group of U.S. technology stocks that have dominated the market. Most are aware of the rise of many of these top mega-cap tech names. Indeed, it does appear we’ve entered yet another tech-driven bull market rally, with leadership becoming increasingly concentrated.
That can be a good and bad thing. For investors looking at valuations, it’s true that the highest-growth companies out there have become among the most expensive.
The good news is that there are a number of terrific growth stocks outside of the U.S. investors may want to consider. The following three companies are ones I’m going to to dub the “Canadian Terrific Three.” Here’s why I think these companies may be worth considering in relation to their high-growth U.S. peers.
Shopify
Shopify ( TSX:SHOP ) is one the largest e-commerce platform providers in the world. The company’s core software-as-a-service platform allows small- and mid-sized businesses to set up online shops and participate in the growth we’re seeing in the e-commerce sector. Since its post-pandemic decline, Shopify has performed well, though not to the extent of many of its U.S. peers.
I think that could change over time. The company’s revenue growth rate of 23% year over year in the first quarter (Q1) remains strong, with gross merchandise value increasing to US$60.9 billion. That’s no small feat. As the company’s ecosystem continues to grow, its transaction-based fee model stands to provide excellent operating leverage for investors.
If one believes Shopify can continue to claw additional market share in the $8.1 trillion global e-commerce sector over the long term, this is a name to pick up on the cheap, in my view.
Constellation Software
Constellation Software ( TSX:CSU ) is a Canadian giant specializing in developing and customizing software for public and private-sector banks. The company acquires, builds and manages vertical-specific businesses across the public and private sectors.
Constellation’s recent results have been similar, providing top-line growth of 23% to more than $2.3 billion this past quarter. The company is increasingly profitable and has seen its profit margin surge to 45%. As the company continues to acquire more small and mid-sized software companies, I certainly think there’s plenty of room for additional top- and bottom-line growth. And with a balance sheet that remains strong, this is likely to remain the case.
Constellation Software has grown over time due to its ability to acquire its way to growth. However, on the organic front, growth has materialized nicely as well. Over the long term, this is a business model that will continue to work. Accordingly, despite its relatively high valuation, CSU stock is one I like right now.
Boyd Group
Boyd Group ( TSX:BYD ) is a glass repair and auto body service conglomerate. Based on Canada, the company’s footprint in the United States is also massive, operating under the Gerber Colission and Glass banner in this market.
Boyd Group has seen a slowdown in its growth rate this past quarter due in part to the company’s ever-growing size and scale in this industry. Like Constellation, Boyd operates a growth-via-acquisition model, consolidating the fragmented auto body sector in North America. The thing is, there’s perhaps even more growth potential in this space, with thousands of smaller chains and individual mom-and-pop run shops looking to sell as their founders age.
The most notable factor supporting this company’s valuation is its net income growth of nearly 8% to US$353 million this past quarter. At a valuation of $5.5 billion , this is a stock that could be among the cheapest high-growth Canadian names on this list, and one I think investors can’t go wrong owning for the long term here.
The post Forget the Magnificent 7: Buy the Canadian Terrific 3 appeared first on The Motley Fool Canada .
Fool contributor Chris MacDonald has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Shopify. The Motley Fool recommends Boyd Group Services and Constellation Software. The Motley Fool has a disclosure policy .
2024