Do you have $400 that you want to invest right now? It might not seem like much, but it could grow over time.
At typical market returns (about 10% per year), you could grow $400 into several thousand dollars over a few decades. If you keep diligently adding money to invest in each year, you could eventually build a portfolio that pays for your retirement!
We all have to start somewhere. Thanks to no-fee trading apps, you can now start investing with any small amount of money you like without worrying about commissions eating into your returns too much.
In this article, I’ll explore three TSX stocks I’d be buying if I were just starting out with $400 today.
Toronto-Dominion Bank (TSX:TD) is one TSX stock I own and one I’d happily buy more of. It’s Canada’s biggest bank by assets and the second biggest by market cap (“market cap” means total value of all shares combined).
Why do I like TD Bank stock?
First, the business is doing pretty well. It just completed its acquisition of the investment bank Cowen, a deal that will increase its already large presence in the United States. It’s also working on buying out First Horizon, another U.S. bank. That deal isn’t going so well, as regulators aren’t approving it, but TD can back out of the deal at a relatively low cost if it wants to.
Second, TD Bank stock is fairly cheap, currently trading at around 9.5 times earnings and 1.3 times book value. This isn’t necessarily all that cheap by the standards of the banking sector, but it is cheap compared to the S&P 500 overall, as the index currently trades at 22 times earnings.
Canadian National Railway (TSX:CNR) is a stock I’ve held in the past and sold only because I wanted to buy other things more. I still basically liked the company when I sold my shares.
CNR is a company with a strong competitive position. It has only one major competitor in Canada and only a handful of them in the U.S. — its other major market. When a company has few competitors, it usually enjoys pricing power, which leads to high profits. CN Railway, consistent with this, does, in fact, enjoy high profits.
Over the last 12 months, it had a 29% net income margin and a 20% free cash flow margin. “Margin” here means profit margin, which is profit divided by revenue; “net income” and “free cash flow” are two different ways of measuring profit. Whichever one you choose, CN Railway is very profitable.
Brookfield Asset Management
Last but not least, we have Brookfield Asset Management (TSX:BAM). This is another “highly profitable” company like CNR. In this case, it’s even more so: it has an astonishing 52.8% net income margin, which is among the highest you’ll ever see from any company.
It’s pretty easy to explain how such high margins are possible. BAM is an asset-light business, meaning it doesn’t have many hard assets, nor many maintenance costs. It simply collects fees by managing clients’ money. The result is a very profitable enterprise that many investors think is worth owning.