There is perhaps no other company in Canada as polarizing as Valeant Pharmaceuticals (TSX: VRX)(NYSE: VRX). As an example, two famous hedge fund investors in the United States, Bill Ackman (who owns a sizable stake) and Jim Chanos (who is betting against the company), disagree on where the stock price is headed. Both of them are very well respected, but at least one of them will be wrong about Valeant.
If you’re thinking of siding with Mr. Ackman, then it’s clear that a strong management track record is more important to you than a company’s transparency. You’re also willing to pay a premium price for a company that’s performing well. So with that in mind, you may want to consider these two names instead.
1. Brookfield Asset Management
Like Valeant, shares of Brookfield Asset Management (TSX: BAM.A)(NYSE: BAM) have done extraordinarily well, returning 19% per year over the past 20 years. Over a time period this long, you can’t claim that luck is involved; such a track record can only come from buying and selling assets smartly.
Also like Valeant, Brookfield is a very difficult company to figure out, with numerous moving parts and changes to its organizational structure. Investors who own the stock are owning it for its track record.
Fortunately, Brookfield is not so expensive. After adjusting for the public companies it owns, it trades at only about 15 times forward earnings.
2. Constellation Software
Anyone who has owned Constellation Software (TSX: CSU) for five years or more has been richly rewarded. The company originally became public back in 2006 at less than $20 per share, and eight years later now trades at nearly $250.
The company’s success comes from CEO Mark Leonard and his management team smartly buying up software companies, typically for under $5 million, and them letting run on their own. Needless to say, it’s worked wonders.
As a bonus, there aren’t the same transparency issues with Constellation that come with Brookfield and Valeant; the company is very straightforward with investors. Unfortunately, Constellation’s shares are very expensive. Last year, the company made $4.39 per share in income and just under $10 per share in free cash flow. These are fairly small numbers for a company with a $247 share price. But if the company can continue to grow as it has in the past, then the shares are undervalued.