Beginners: 2 Market-Beating Stocks Just Getting Started

Brookfield Asset Management (TSX:BAM.A)(NYSE:BAM) and Constellation Software (TSX:CSU) are proven market beaters that could continue their ways.

| More on:
Man data analyze

Image source: Getty Images

It doesn’t have to be hard to beat the TSX Index over a long period of time. The tech-light, energy-heavy index may be performing well this year. However, as energy prices slip (WTI just fell below US$90 per barrel), and financials feel the heat of the coming economic slowdown, it’s the TSX that may be in for sub-par returns. For new investors, it may be wise to go for the S&P 500, as it looks to catch up to the TSX for the year. Both indices are still in a correction, with the S&P 500 that’s gaining more positive momentum.

With such a strong U.S. dollar (the loonie is worth US$0.77 today), Canadians shouldn’t feel the need to make the swap to by securities south of the border. There’s still a ton of great value to be had in Canada. It’s just underrepresented by the broader TSX Index. Undoubtedly, this climate seems ripe for stock-picking one’s way to above-average results. And in this piece, we’ll have a closer look at two proven market beaters that are likely to continue raising the bar over the next 18 months and beyond.

Consider shares of Brookfield Asset Management (TSX:BAM.A)(NYSE:BAM) and Constellation Software (TSX:CSU).

Brookfield Asset Management

Brookfield Asset Management is a legendary alternative asset manager with a more than $100 billion market cap and over 100% in gains over the last five years (not including dividends). Undoubtedly, the appetite for real assets, like infrastructure, renewable power assets, toll roads, pipelines, and real estate could stay in high demand, as investors look to park their cash in assets less correlated to the broader market.

With a legendary management team led by CEO Bruce Flatt, Brookfield ought to be a core holding in any Canadian investors’ portfolio. During the recent market selloff, the stock fell more than 26% from peak to trough. The stock is now in the process of recovering and could test new highs, as investors move beyond recession fears.

Looking ahead, management sees returns in the range of 12-15% for its investments. I think they’re more than capable of hitting the high end of the target. If they do, BAM shares could continue crushing the broader TSX Index.

At writing, the stock trades at one times price to book (P/B), which is well above the industry average P/B of 3.7. With a 1% dividend yield (it’s small, with growth potential), I’d look to be a buyer right here.

Constellation Software

Constellation Software is another proven TSX beater, with an astounding 212% returns posted over the last five years. Meanwhile, the TSX Index clocked in just 30% returns.

Constellation is in the business of acquiring and bringing out the best in small-cap and startup software companies. Management does their due diligence and only makes deals where considerable value can be created. With the tech market in a rut, Constellation has an opportunity to ramp up its M&A. The $45.5 billion company has a remarkable 15.8% return on equity, which is well above the 12.4% software industry average.

Simply put, management has found a way to generate incredible results for investors over the long run. And I think they can perform in any type of environment.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Joey Frenette has no position in any of the stocks mentioned. The Motley Fool recommends Brookfield Asset Management Inc. CL.A LV and Constellation Software.

More on Stocks for Beginners

Canadian Dollars
Stocks for Beginners

How a $10,000 TFSA or RRSP Investment Can Become $193,000

Are you looking to build wealth for retirement? Here's one way that turned a $10,000 TFSA or RRSP investment into…

Read more »

You Should Know This
Stocks for Beginners

TFSA 101: How to Use it With Your RRSP

The TFSA is a great way to start saving, but, if used with your RRSP, it is a fantastic way…

Read more »

analyze data
Stocks for Beginners

How to Start Investing With Little Money

ETFs are a great way for beginner investors to start building a portfolio with little capital.

Read more »

A stock price graph showing growth over time
Stocks for Beginners

3 Undervalued Stocks to Triple Your Portfolio

These three undervalued stocks are the perfect choice for those looking for stable but strong growth in the next few…

Read more »

clock time
Stocks for Beginners

Brookfield Asset Management (TSX:BAM.A) Stock Is Down 20%: Time to Buy?

Brookfield Asset Management (TSX:BAM.A) has fallen 20% this year. Is now the time to pick up this top Canadian stock?

Read more »

money cash dividends
Dividend Stocks

Canadian Investors: Where to Put $100 Right Now

Canadians with $100 to invest can put their money to work in three low-priced, dividend-paying TSX stocks.

Read more »

Dice engraved with the words buy and sell
Dividend Stocks

Not Every Cheap Stock has Value: 1 Stock to Buy, 1 to Sell, and 1 to Hold

The market downturn has created an opportunity to buy value stocks at a bargain. Here’s a guide to optimizing your…

Read more »

Credit card, online shopping, retail
Stocks for Beginners

Need Cash? Get a New Credit Card

Canadians can create some savings by simply finding a new credit card that offers more perks and bonuses, and use…

Read more »