The TFSA (Tax-Free Savings Account) serves as an excellent vehicle for long-term investors to build their wealth and grow their portfolios in a tax-free fashion. Similar to a Roth IRA product in the U.S., investing after-tax money into these accounts can be pulled out at any time tax-free. If you have a big winner that goes on a 10X tear over a long period of time, all those gains aren’t taxable. That’s a big advantage when looking at top growth stocks.
In this piece, I’m going to dive into two top Canadian growth stocks that I think are worth putting in a TFSA right now. These are two top picks I’m considering adding to my own portfolio.
Here’s why.
Shopify
Shopify (TSX:SHOP) is a truly unique Canadian unicorn, having decided to retain its Canadian head offices while it expands to become a global e-commerce behemoth. The company provides an integrated online platform through which millions of businesses sell products and services.
Shopify has experienced tremendous growth over the past few years with its massive scale compared to most competitors in this sector. In the second quarter of 2024, Shopify saw revenues and gross profits increase by 21% and 25%, respectively. Furthermore, its free cash flow increased at an annual rate of 243.3%. Globalization, point-of-sale, and enterprise solutions are some of the major contributing factors to the current performance.
In addition, Shopify estimates it has penetrated only a small fraction of its total addressable market. Management estimates that the company’s total addressable market opportunity stands in the neighbourhood of $849 billion. In addition, it has penetrated only 2% of its opportunity in the geographical areas it serves.
Shopify shares are trading up by about 56% over the trailing 12-month period. With your multi-year hold horizon, you can enjoy the company’s growth trajectory over a much longer time frame. In addition, Shopify Plus has yielded 34% more recurrent revenue in a month during the second quarter (Q2) of FY2025.
Constellation Software
Constellation Software (TSX:CSU) is a leading, independent, private enterprise software company based in Toronto that services a select group of clients through its software and services. The company builds, manages, and acquires industry-specific software and provides mission-critical services to its customers.
Constellation Software’s latest earnings update the trend while raising Q2 revenues to $2.47 billion from $2.04 billion year over year. The company also saw impressive growth on the bottom line, with Constellation’s net income nearly doubling to $177 million. Analysts estimate the company’s annual earnings growth will come in around 23.6%. Indeed, Constellation appears well-positioned for outsized upside relative to other Canadian tech stocks and is a top name in this space worth considering right now.
Constellation has been a much sweeter ride, reporting rigid TSX-beating gains while exposing itself to much less market risk than most other high-growth plays. The company is the best smart bet on a wide range of smaller Canadian software companies and can continue to replicate that strategy for many years. Thus, Constellation is a one-stop shop if you are looking for a less-risky way to play venture capital.
