Investing in a basket of solid stocks with strong growth prospects can ultimately lead to a seven-figure portfolio. This means adding to your holdings regularly or opportunistically. Here are five of the best Canadian stocks to buy.
Early investors of tech company Constellation Software (TSX:CSU) has turned an initial investment of $10,000 into over $1 million. For instance, a $10,000 investment made fewer than 15 years ago is worth close to $1.2 million!
Today, the global company generates revenues of north of US$6 billion and operating income of over US$1 billion annually. Management has been exceptional at allocating capital, resulting in high returns. For example, Constellation Software’s five-year return on invested capital and return on equity are about 26% and 46%, respectively.
At just under $2,700 per share at writing, analysts believe the tech stock trades at a slight discount of about 12%.
Canadian Pacific Kansas City
Canadian Pacific Kansas City (TSX:CP) recently merged with Kansas City, connecting its railway network across Canada, the United States, and Mexico. Its large scale and cost advantages should allow it to continue to enjoy competitive advantages.
Like Constellation Software, Canadian Pacific’s returns have also been above average. For instance, its five-year return on invested capital and return on equity are about 14.6% and 27.6%, respectively.
In the past 18 years or so, CP stock delivered annualized returns of about 15% per year, which beat the U.S. stock market (using SPDR S&P 500 ETF Trust as a proxy) return by roughly 76%, essentially turning an initial investment of $10,000 into almost $133,300.
Global convenience store consolidator Alimentation Couche-Tard (TSX:ATD) has also compounded its long-term investors’ wealth at an extraordinary rate. In the past 18 years or so, it transformed an initial $10,000 investment into about $199,400 for annualized returns of roughly 18%.
Management has also been shareholder friendly by regularly increasing its dividend. Couche-Tard’s 10-year dividend-growth rate of about 25% has been incredible. The company generates growing cash flow over time to reinvest into the business and pay a growing dividend.
At about $66 and change per share, Couche-Tard trades at a discount of approximately 10% according to the analyst consensus 12-month price target.
Brookfield Corp. (TSX:BN) has deployed its capital across asset management, insurance solutions, and its operating businesses. It aims to compound capital to generate annual returns of over 15% for its shareholders over the long run. The stock’s 10-year total returns are close to 14% per year. This is very close to the target. What’s important to note is that the stock has declined approximately 17% in the last 12 months.
This means it could be on sale. Indeed, at $42.66 per share, the consensus analyst 12-month price target suggests Brookfield stock trades at a substantial discount of approximately a third. Strategic investments in the stock could help investors achieve $1 million over time.
The stock of leading non-prime consumer lender goeasy (TSX:GSY) has been under pressure in an environment of rising interest rates a tighter regulation of the industry. Its press release last month stated, “on March 28, 2023, the Government of Canada announced through the Federal Budget its intent to reduce the maximum allowable rate of interest to an annual percentage rate of 35%.” Consequently, the company revised its forecast for 2023 to 2025.
They were small revisions. Actually, goeasy did not change its 2023 outlook much, other than improving its revenue expectations slightly to $1.20-$1.25 billion and lowering its net charge offs to 8-10% of its average gross consumer loans receivable, which are positive. The management also pointed out that the regulation tightening affects smaller players more and not as much to goeasy that has been expanding its scale and reducing its average interest rate anyway.
At under $110 per share at writing, the analyst consensus 12-month price target suggests the undervalued stock trades at a discount of about 32%. It also offers a decent dividend yield of 3.5%.