Whenever you invest in stocks, you need to have a reasonably long investment time frame. A five-year holding period is recommended, and even longer is better. Why? While many treat the stock market like a casino where they can trade stocks like chips, every stock has a business behind it.
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Investing in stocks takes time — plain and simple
Every business takes time to execute its strategy, grow its brand, or develop and deploy new products. These processes can take months and years to accomplish. Fortunately, the best businesses seem to keep getting better as they grow and scale.
Yet it often takes time (and a lot of it) to allow great businesses to compound value for their shareholders. Several studies have found that investors who buy and hold stocks in great businesses for very long periods outperform those that trade in and out of stocks based on the whims of the market.
If this long-term approach resonates with you, here are three stocks in great Canadian businesses you can buy and hold for the next five years or more.
CP: A long-term sector outperformer
Canadian Pacific Railway (TSX:CP) has been one of the best-performing railroad stocks in North America over the past five and 10 years. Its stock is up 129% and 310%, respectively!
On a five-year basis, its stock has doubled the performance of other much larger railroads. CP has consistently been one of the most efficient and profitable railways, so there is fair reason for its outperformance.
CP is about to get significantly larger now that its deal to acquire and integrate Kansas City Southern has been approved by regulators. It will have a dominant network that connects Canada, the U.S., and Mexico on one line.
While it will likely take years to become accretive, the deal projects CP into a serious player in North America. CP is not a cheap stock, but its outperformance warrants a premium. That might be okay, especially if you plan to hold for many years ahead.
ATD: A boring stock with great returns
Another strong performer with a great long-term track record is Alimentation Couche-Tard (TSX:ATD). Investors who have owned this for five and 10 years would be up 138% and 633%, respectively. Convenience stores and gas stations aren’t flashy businesses, but Couche-Tard certainly has the secret sauce at making them profitable.
This business generates a lot of spare cash, and Couche-Tard has been very good at buying back shares. Over the past five years, its share count has dropped 11%. At the same time, earnings per share have increased 87%!
Couche-Tard just announced a big acquisition in Europe. Since then, the stock has reacted very positively. Despite that, it still trades at a reasonably attractive 17 times earnings.
CGY: An undervalued technology acquirer
Another quality, long-term stock is Calian Group (TSX:CGY). Over the past five years, this stock is up 106%. Calian is a diversified business with exposure to healthcare, satcom, training, and cybersecurity, and IT. It is a steady business, because government clients make up a core group of its customers.
Every year, it makes a few smart acquisitions that help expand its presence in its core markets. This has also helped it grow its profitability. It just announced a very intriguing acquisition in the satcom/networking space in Hawaii.
Calian has been growing by about 20% for the past three years. Despite that, it trades at only 14 times adjusted earnings per share. This makes for an attractive price-to-growth opportunity for investors willing to look out five years or more.
