A big mistake retail investors make is buying stocks that are full of hype rather than focusing on companies with strong fundamentals. The issue with this strategy is you invest in companies trading near record highs, which suggests investors might be quite late to the party.
These stocks may generate outsized gains for a few quarters before fading into oblivion, as they don’t have the competitive advantage to sustain their market leadership over time.
So, it’s advisable to focus on buying stocks you can hold over time and maybe forever. For instance, a famous quote by investment mogul Warren Buffett is, “Our favourite holding period is forever.”
Basically, Canadian retail investors need to find stocks that can consistently produce inflation-beating returns over the long term. Here are three such top TSX stocks you need to buy and hold forever.
Aritzia stock
Valued at a market cap of $2.7 billion, Aritzia (TSX:ATZ) operates in the luxury retail space. Down 60% from all-time highs, ATZ stock trades at a compelling valuation today, allowing shareholders to buy a quality company at a lower multiple.
Aritzia is a multi-channel retailer with expanding brand awareness in the U.S., which is the world’s largest economy. The company remains a top bet for shareholders due to its potential for geographic expansion and growth in online sales.
Aritzia ended the fiscal first quarter (Q1) of 2024 with 115 boutiques, 47 of which are located in the U.S. and the rest in Canada. Due to its store expansion, Aritzia could increase sales by 26% annually in the last four years while adjusted EBITDA (earnings before interest, tax, depreciation, and amortization) has grown by 23% since fiscal 2019.
Priced at 13 times forward earnings, ATZ stock is quite cheap for a growth stock and trades at a discount of 50% to consensus price target estimates.
Alimentation Couche-Tard stock
One of the biggest companies in Canada, Alimentation Couche-Tard (TSX:ATD) has already returned 5,000% to shareholders since August 2003. Trading near all-time highs, ATD stock is priced at 17.6 times forward earnings, which is very reasonable.
Valued at a market cap of $67 billion, ATD’s vast size and scale provide it with the financial flexibility and resources to compete with small-size operators. Its strong cash flow generation and widening profit margins support investments in capital expenditures and organic growth initiatives. In the last 10 years, ATD has increased dividends by 27% annually, which is quite exceptional.
Emera stock
The final TSX stock on my list is Emera (TSX:EMA) which also offers shareholders a tasty dividend yield of 5.4%. Initially operating as a single utility in Nova Scotia, Emera is now an energy leader with $40 billion in assets. It serves 2.5 million customers in Canada, the U.S., and the Caribbean.
A majority of Emera’s investments in rate-regulated businesses are located in Florida. Its portfolio of regulated utilities provides a stable stream of earnings and cash flows. Emera emphasized its net investments in the utility, also known as the rate base, primarily drives earnings opportunities.
Emera expects to grow its rate base by at least 7% through 2025, which should drive future cash flows and dividends higher. Priced at 16 times forward earnings, Emera stock trades at a discount of 18% to consensus price target estimates.
