With indexes at all-time highs, should you be trying to find the next 10-bagger? Wouldn’t you rather own a boring company that just keeps going up year after year over the roller coaster that speculative growth stocks expose you to?
Below are three companies that might not be the most entertaining to talk about at your next barbecue, but will most likely outperform any speculative growth stocks in the next decade.
National Bank of Canada
National Bank of Canada (TSX: NA) is not the biggest of our financial institutions, but it is very profitable nonetheless. With a return on assets of 0.8% and a return on equity of 18.9%, it is in an excellent position to increase its earnings when interest rates creep back up. Unlike the average company, banks should be valued at a price-to-tangible book value ratio — that is, the price divided by the book value of the assets per share minus any goodwill — rather than on a price-to-earnings ratio basis.
With the price-to-tangible book value ratio, lower is better, and National Bank’s P/TBV value of 2.59 is much lower than competitors Royal Bank of Canada (TSX: RY)(NYSE: RY) and Toronto-Dominion Bank (TSX: TD)(NYSE: TD) at 3.17 and 3.02, respectively. Moreover, at current prices National Bank’s dividend yield of 4.24% is the highest of its peers.
It is undeniable that what Alimentation Couche-Tard (TSX: ATD.B) managed to accomplish in the last 30 years is one of the best business successes coming out of Canada. Starting from only one convenience store in Quebec to owning more than 8,500 stores worldwide in such a competitive industry speaks for itself.
After a successful entry into the United States, the company recently acquired more than 2,500 stores from Statoil (NYSE: STO), increasing revenues by almost 50% and giving it access to the European markets. Success in the north of Europe would give the legitimacy management needs to increase its footprint on the old continent.
Right now there is a discount on the stock due to the recent acquisition; nevertheless, Alimentation Couche-Tard has proven that it can operate in foreign countries, evidenced by its success in the United States. There is no doubt in my mind that management will have success in Europe and sooner or later the market will realize the potential that Western Europe can offer. The growth story is not over at this convenience store.
Our third and final long-term play is ShawCor (TSX: SCL) — an energy services company for the oil and gas industry that in recent years has seen some pressure from the market due to the challenging economics of the industry. Nonetheless, ShawCor is an exceptional operator and while the oil industry is a cyclical one, the secular trend in energy is positive, as evidenced by the increasing investments that integrated oil companies are making in replenishing their proven reserves.
With an operating margin of 17% and a return on capital of 22%, management of ShawCor knows how to operate in a harsh environment. With a low debt-to-assets ratio of 24%, the company can easily weather a longer cyclical downturn.
These stocks are boring. Their businesses are redundant and have barely changed in the last decade, but they make money and lots of it. With this trio, you’ll own a robust dividend yielder with National Bank, healthy growth with Alimentation Couche-Tard, and a defensive value play with ShawCor. As investors, what more can we ask for?