The Best Canadian TSX Stock to Buy Now

Buy TSX stocks on long-term uptrends with high return on equity, like Constellation Software (TSX:CSU), to optimize your stock market returns in Canada.

| More on:

There are many Canadian companies with long-term histories of outperforming the S&P/TSX Composite Index. As the historical top gainers are proven winners on the exchange, these top stocks should be in every Canadian’s retirement portfolio.

When you aren’t sure which stocks to buy, you know you can trust established, reputable companies that rarely ever lose any price momentum. Constellation Software (TSX: CSU) has been on a 10-year uptrend on the Toronto Stock Exchange.

Since 2010, the stock price has climbed 3,650% versus the index level percent change of 57.02%. The good news is that you haven’t missed out on making money on this diversified technology stock.

Buy stocks on long-term uptrends

It’s never too late to buy stocks on long-term uptrends like Constellation Software. Stocks like this might undergo small, temporary dips much like the one Constellation Software experienced in 2018. Nevertheless, these companies will almost always bounce back.

^TSX Chart

^TSX data by YCharts

There’s a reason why Constellation Software has been on such a long uptrend. This technology stock reports a return on equity (ROE) of 63.42%!

Return on equity is the net income of a company divided by total shareholder equity. A high return on equity indicates that investors can feel confident that their investment will pay returns later on.

If you are wondering which types of stocks in which to invest, find established companies with long-term uptrends and a high ROE.  That way you won’t need to worry about losing your life savings in stocks like Constellation Software.

Buy stocks with strong EPS growth

In the past year alone, the stock has returned 49% on the TSX. By comparison, the S&P/TSX Composite Index has increased by just 13.23%.

Canadians who want to earn alpha-level returns (above market average returns) in the stock market in 2020 should find stocks that consistently outperform the market such as Constellation Software.

^TSX Chart

^TSX data by YCharts

Constellation Software is a technology company with high earnings growth. In 2018, Constellation Software brought in $17.90 in earnings per share (EPS), 71% higher than 2017’s reported EPS of $10.47. In 2016, Constellation Software reported $9.76.

Smart investors look for dependable growth in earnings. So before you invest in new, hot stocks with outsized share price increases compared to the EPS growth, you should re-evaluate your options. Overpriced stocks with hard-to-justify price momentum are too risky for the average investor.

Stick with proven earners before taking on risk

Before taking on risk in your Registered Retirement Savings Plan (RRSP) or Tax-Free Savings Account (TFSA), make sure you have reliable stocks like Constellation Software in your portfolio.

There’s nothing wrong with making speculative bets in the market to add some potentially profitable risk to your stock market portfolio. Before you make those bets, however, you need to ensure that you have exhausted your less risky investment options with similar expected returns.

Constellation Software has a five-year beta of about 0.7, less than the market average of approximately 1.0. If you use the beta as a risk measure, you can determine how well you’re optimizing your portfolio returns with respect to market risk.

Self-investing isn’t difficult. You just need to learn how to avoid unnecessary speculation and instead earn easy, painless money in the stock market.

Fool contributor Debra Ray has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Constellation Software.

More on Dividend Stocks

A train passes Morant's curve in Banff National Park in the Canadian Rockies.
Dividend Stocks

This Isn’t a “Quick Win” Stock: It’s a “Steady Builder” One

CN Rail (TSX:CNR) may be the steadiest compounder on the entire Canadian stock market.

Read more »

dividend growth for passive income
Dividend Stocks

1 Undervalued Canadian Dividend Stock to Buy Now and Hold for Decades

This stock is down 15% from the recent highs and now offers an attractive dividend yield.

Read more »

House models and one with REIT real estate investment trust.
Dividend Stocks

Here’s the 6.8% Dividend Stock I Keep Coming Back To

SmartCentres REIT (TSX:SRU.UN) stands out as a near-7% yield dividend play that's worth coming back to for yield.

Read more »

Child measures his height on wall. He is growing taller.
Dividend Stocks

New to Investing? Start With This Canadian Dividend Stock

This Canadian stock has a proven record of paying dividends and consistently raising their payouts in the years ahead.

Read more »

ETFs can contain investments such as stocks
Dividend Stocks

VFV Isn’t a Complete Portfolio: Here’s What Canadian Investors May Be Missing

VFV feels like a complete portfolio, but it’s really a concentrated bet on U.S. large caps and the U.S. dollar.

Read more »

Partially complete jigsaw puzzle with scattered missing pieces
Dividend Stocks

Don’t Want to Wait a Year for a GIC Payout? This 11.7% Dividend Stock Pays You Monthly

Hamilton Canadian Financials Yield Maximizer ETF (TSX:HMAX) stands out as the ultimate passive-income booster, but it's far different than GICs.

Read more »

dividends grow over time
Dividend Stocks

GIC or Dividend Stock? Here’s Where I’d Put $10,000 for Income and Growth

Rogers can beat a one‑year GIC on income and long-term upside, but only if you can handle volatility and debt…

Read more »

Agricultural harvesting at the last light of day, aerial view.
Dividend Stocks

Potash Power Play: Why This Overlooked Commodity Could Be Canada’s Trump Card

Canada’s potash dominance gives Nutrien a strategic edge as trade tensions rise, making this overlooked commodity worth watching closely.

Read more »