Long-term investing is an excellent strategy for creating wealth, as it allows investors to benefit from the power of compounding while shielding them from short-term volatility. However, investors should choose stocks carefully and opt for those with solid underlying businesses and healthy growth prospects. Let’s look at my top three picks.
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Dollarama
Dollarama (TSX:DOL) is a discount retailer operating 1,601 stores across Canada, with at least one store within a 10-kilometere radius of 85% of Canadians. Its solid direct-sourcing model and effective logistics allow it to offer various products at attractive prices, and thus enjoy healthy same-store sales irrespective of the economic cycles. Moreover, the company continues to grow its store network and hopes to raise its store count to 2,200 over the next nine years. Given its cost-effective growth-oriented business model, lean operations, and lower payback period, these expansions could support its top-line and bottom-line growth.
Moreover, Dollarama is also expanding its footprint in Latin America through Dollarcity, where it owns a 60.1% stake. Dollarcity’s management expects to add around 470 stores over the next six years. Also, Dollarama can increase its stake in Dollarcity to 70% by exercising its option by the end of 2027. These growth initiatives could support Dollarama’s financials in the coming years.
Further, Dollarama announced last week that it had signed an agreement to acquire The Reject Shop for $233 million. This Australian discount retailer operates 390 stores and has generated $779 million in sales in the last 12 months. Considering all these factors, I believe Dollarama would be a worthwhile long-term buy.
Shopify
Second on my list would be Shopify (TSX:SHOP), which offers omnichannel commerce solutions to businesses worldwide. Although the company has delivered substantial returns over the last few years, I expect the uptrend to continue amid an expanding addressable market due to the continued adoption of the omnichannel selling model. The company has increased its investments in R&D (research and development) to develop innovative products and solutions.
Also, Shopify has prioritized international, core platform, B2B (business-to-business), enterprise, and offline segments this year. Moreover, its growing penetration of payment solutions and geographical expansions could also support its financial growth in the coming years. However, amid the volatility in the equity markets, the company has corrected over 20% compared to its February highs, thus offering enticing buying opportunities.
goeasy
goeasy (TSX:GSY) is a subprime lender that has grown its revenue and adjusted EPS (earnings per share) at a 19.4% and 28.7% CAGR (compound annual growth rate), respectively, over the last 10 years. Despite solid growth over these years, the company has acquired around 2% of the $231 billion subprime credit market. So, its scope for expansion looks solid.
Given its expanded product offerings, multiple distribution channels, and geographical expansion, goeasy could continue to expand its loan portfolio, thus driving its financials. It also increased its funding capacity to $2.2 billion by raising US$400 million earlier this month by issuing unsecured notes. Further, the company has tightened its credit tolerance and adopted next-gen credit models, which could lower its delinquencies and drive its profitability.
Moreover, goeasy has raised its dividends uninterruptedly since 2014 at an annualized rate of 29.5% and currently offers a forward dividend yield of 3.7%. Its valuation also looks reasonable, with its NTM (next 12 months) price-to-earnings multiple at 8, making it an attractive buy.
