Investing a sum like $5,000 is a big decision. On the one hand, it’s enough money that you have to think seriously about what you spend it on. On the other hand, it’s not so much money that you’re going to earn serious interest by it putting it in Guaranteed Investment Certificates (GICs). So, you’ll want to invest in a diversified portfolio of assets that maximizes returns while minimizing risk.
Index funds can really come in handy here. If you put, say, 60% of your money into a global stocks fund and 40% of it into treasuries or GICs, you’ll probably do well over the long term.
However, you may have a desire to invest some of your $5,000 into something more aggressive, like an individual stock. There’s nothing wrong with doing that, provided that you size your positions appropriately. In fact, there is even a non-zero chance that you will outperform the indexes by doing so. With that in mind, here are three Canadian stocks worth looking into in August 2023.
Constellation Software
Constellation Software (TSX:CSU) is a Canadian software company that works something like a venture capital fund. It spends money buying up small companies, typically for $5 million to $10 million, and then incorporating them into its own business. This “buy-and-hold” approach is atypical for tech investors, but it has paid off over the years: since it went public, CSU stock has risen more than 14,000%.
What does CSU invest in? It invests mainly in enterprise software companies. It invests in companies that develop software for businesses and the government, locking in recurring revenue in the process. It’s working out pretty well for Constellation Software on the whole.
In its most recent quarter, Constellation Software delivered $1.92 billion in revenue, up 34%, and $453 million in free cash flow (FCF), up 39%. Some people have criticized CSU for the fact that most of its growth comes from acquisitions rather than organic growth, but if you look at last quarter’s earnings, you’ll see that FCF is still rising, despite the company having to “pay for” its growth. It seems like Mark Leonard & co know what they’re doing.
Alimentation Couche-Tard
Alimentation Couche-Tard (TSX:ATD) is a Canadian gas station company. It operates gas stations across Canada, the United States, and Europe. It is best known in Canada for the Circle K gas station chain, which it purchased from ConocoPhillips in 2003. The company spent much of the 2000s and 2010s expanding Circle K all over Canada. Today Circle K stores are common sights in cities across the nation.
One key to ATD’s success has been its acquisition strategy. Rather than borrowing heavy amounts of money to fuel growth, the company has invested large sums of earnings back into itself, resulting in “low-cost” growth. The results speak for themselves. Over the last five years, the company has grown its revenue, earnings and free cash flow at the following rates:
- Revenue: 6.93%
- Earnings: 15.7%
- Free cash flow: 14.16%
That’s solid growth, by any standards. And ATD’s margins are quite healthy, too.
CN Railway
Last but not least, we have the Canadian National Railway (TSX:CNR). It’s hard to think of a company with more advantages than CNR. As a railroad, it enjoys a massive cost advantage over trucking companies. It has only one major competitor in Canada and only a small handful of them in the United States. It has a sky-high 31% net income margin. It has grown its free cash flow by 21% per year over the last five years. Finally, it ships $250 billion worth of goods per year, making it an indispensable component of North America’s transportation infrastructure.
