At any given time, hundreds of stocks are beating the TSX market and outpacing it at varying margins. Therefore, you should look a bit deeper and ask yourself whether this stock will keep beating the market in the next four or five years. Or is its current pace driven by some temporary factors?
A relatively thorough assessment of a stock’s fundamentals and its individual and industry-specific potential can help you buy stocks that may help you stay ahead of the market (most of the time) in the foreseeable future.
A food and pharmacy retailer
Metro (TSX: MRU) is counted among the giants in the food and pharmacy domain. It has a great network of about 1,600% locations — almost 60% of which are grocery stores (950) and the rest are pharmacies. Over the years, it has consolidated multiple brands under both business divisions (food and pharmacy).
The business model makes Metro not just evergreen but highly resilient against market crashes, recessions, and even pandemics. No matter the financial condition, food, and health are two things people around the globe keep spending money on, and this is Metro’s strength.
This may also be the driving force behind the stock’s consistent growth. The Metro stock is beating the market, not just this year (it rose over 4.6%, whereas the TSX dropped 6.1%) but for the past several years. The five-year growth of the Metro stock is more than double the market’s growth.
An energy stock
Most energy stocks are beating the market right now and by a massive margin. Take Baytex Energy (TSX: BTE) as an example. The stock has risen 74% since the beginning of the year, whereas the market has actually dropped during the same period. But that’s a factor driven by a temporary force.
The energy sector in Canada has been riding the high wave since Nov. 2020, and Baytex, like most other companies in the industry, is along for the ride. And thanks to the high oil prices, the financials of an energy producer like Baytex are keeping pace with the stock, as it’s trading at a price-to-earnings ratio of just 4.7.
So, Baytex is beating the market, but it’s difficult to project how long the current bull market will last. It may be months or even years before the sector goes into correction and we experience a bear market. But till then, you can benefit from its market-beating growth.
A utility stock
Utility stocks like Capital Power (TSX: CPX) are usually sought for their stability and dividends, but the company also offers market-beating returns. It has seen a price appreciation of over 124% in the last decade, which is almost double the performance of the TSX composite over the same decade.
Apart from this powerful growth potential, the stock also offers safe dividends associated with utility stocks at a yield of about 4.4%. The company is also repositioning itself for the future as a sustainable power producer, which may endorse its long-term potential as a holding. The company mainly caters to an Albertan market.
Foolish takeaway
A more accurate calculation of the market-beating returns would include not just capital appreciation but dividends as well. This may allow you to pick the better option between a market-following ETF that also offers dividends and a stock that can outpace it on both return fronts (dividends and growth).
