2 “Boring” Stocks That Have Handily Beaten the Market – and Could Keep Doing It

Canadian National Railway stock is one of two boring, yet consistently outperforming, TSX stocks that could make you rich.

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Some businesses rarely gain media attention, and they are never hyped. They seem boring, yet they make consistent profits and boatloads of cash behind the scenes. Two such Canadian stocks have made loyal investors richer and happier for decades, with returns that have beaten the broader stock market returns by wide margins, consistently.

Boring companies with proven business models, realistic equity valuations, and years of steady profitability growth can deliver respectable investment returns despite any potential financial crunch, or recession. Their stock values are seldom affected by waves of market hype, euphoria, or insatiable greed. They also evade the plunges associated with episodes of fear and paranoia. They are “sobber” assets trustworthy enough to belong to your retirement investment plan.

The two boring large-cap stocks we shall cover in this article have handily beaten the TSX over the past two decades, and they may continue to do so.

Waste Connections

No other business could be as dull and boring as solid household and industrial waste management and recycling. However, Waste Connections (TSX:WCN), a $49.7 billion North American waste manager (the third-largest player in its industry), has created a huge garbage business and rewarded WCN stock investors with market-beating total returns time and time again over the past two decades.

Waste Connections stock has returned a staggering 1,160% in total investment returns since 2000. Meanwhile, the TSX Composite Index has gained 199.8% during the same period. Returns have been evenly spread across various investment periods, and shares have outperformed the TSX in the past 10 years. Investors who bought WCN stock five years ago could be sitting on a 117% total gain while the TSX returned 56.7%.

Not-so-boring performance

The boring TSX stock is growing revenues, earnings, and cash flow at respectable rates. Organic growth and acquisitions combined to power a 9% annual revenue growth rate over the past five years. In 2022, the company enjoyed 17.2% year-over-year sales growth. Management recently guided for 11.6% year-over-year growth in 2023 revenue anchored on price increases and accretive acquisitions.

The market expects Waste Connections to grow its net earnings at an average rate of 13.5% annually over the next five years. Shares sport a reasonable forward price-to-earnings multiple of 29.5.

If the business can deliver on its expected double-digit earnings growth rates, a boring Waste Connections stock could easily continue to beat the TSX over the next decade too.

Canadian National Railway

Canadian railroad companies run plain age-old businesses that seem boring. Yet, they have consistent market-beating stock returns to show. The biggest player in the duopoly, Canadian National Railway (TSX:CNR), is a $109 billion railroad giant with an extensive rail network moving Canadian and U.S. bulky goods, passengers, and e-commerce parcels.

The business has been good for decades, and it keeps improving. CN Rail stock investors have been smiling, even during bad economic times. CNR stock has delivered 786.9% in total returns since the year 2000 while the TSX Composite has gained 199.8%. The railroad stock returned 296.9% in 10-year total returns, a better performance than the TSX, which returned 133.6% during the same period. The trend is the same over the past five years as CNR stock’s dividend and capital gains totalled 89% while the TSX generated 56.7% in comparable returns.

CN Rail pioneered scheduled railroading more than 50 years ago, an operational strategy that unlocked better service, productivity, higher asset utilization, and improved cost controls. It boasts industry-leading operating margins of 43.2% today, well above the industry average of 18.1%. Technology investments this decade should drive further fuel efficiency improvements and support growing adjusted earnings before interest, taxes, depreciation, and amortization (adjusted EBITDA).

A rail pioneer

The company has grown its revenue at an average annual rate of 5.8% over the past five years, and increased its adjusted EBITDA at an even higher rate of 6.3% per year during the same period. Bay Street analysts estimate that CN Rail stock could deliver a 12.7% average annual growth rate in earnings per share over the next five years. The stock could generate above-average returns once again during the next five years.

Shares sport a forward PE multiple of 19.1. CNR stock looks fairly valued given the ever-growing railroad giant’s excellent execution history, strong balance sheet, growing free cash flow, and the success of its organic and acquisitions-led growth strategy.

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 Brian Paradza has no positions in any of the stocks mentioned. The Motley Fool recommends Canadian National Railway. The Motley Fool has a disclosure policy.

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