Historically, stocks have been the best-performing asset class. And they can be great long-term investments. However, investors have to bear the risks of the underlying businesses as well as the stock volatility.
Here are some no-brainer stocks to buy over time at the right valuations for the next 10 years.
CSU, ATD, TD, and XIU Total Return Level data by YCharts
Constellation Software
Constellation Software (TSX:CSU) is one of the best-performing stocks on the TSX. In the last 10 years, it created substantial wealth for its shareholders, turning an initial investment of $10,000 into about $181,950 for annualized returns of north of 33%!
In the past 10 years, it eight times its adjusted earnings per share. In other words, it was a growth rate of 23% per year. So, the growth stock experienced valuation expansion that helped drive extra stock price appreciation.
As illustrated by its high return on invested capital and return on equity, the tech stock has been excellent in mergers and acquisitions and capital allocation. For your reference, its five-year return on invested capital and return on equity are approximately 25% and 45%, respectively.
At about $2,814 per share and close to its all-time high, analysts still think the stock is fairly valued at about 37.5 times earnings. Therefore, investors could consider building a long-term position. If the stock price is too high for you, you can buy partial positions through Wealthsimple.
Alimentation Couche-Tard
Like Constellation Software, Alimentation Couche-Tard (TSX:ATD) stock also has strong price momentum, return on invested capital, and return on equity. The global convenience store consolidator has largely been a smooth-sailing stock that, at worst, seems to experience sideways price action. Couche-Tard’s five-year return on invested capital and return on equity are approximately 14% and 23%, respectively, which are market beating.
In the past 10 years, it grew its adjusted earnings per share more than seven-fold — a growth rate of 22.5% per year. In the last 10 years, it created outsized wealth for its shareholders, turning an initial investment of $10,000 into about $74,100 for annualized returns of north of 22%!
At $71.85 per share, analysts believe the stock is discounted by about 10%. Through commission-free trading platforms like Wealthsimple and National Bank, interested investors can build their positions over time.
Toronto-Dominion Bank
Compared to the other two stocks, Toronto-Dominion Bank (TSX:TD) stock has been more sensitive to the economic cycle. Currently, the market is anticipating slower economic growth from relatively high inflation and interest rates versus the recent history.
Additionally, economists are forecasting a higher probability of a recession in Canada and the United States by 2024. As a result, like its Canadian bank peers, TD Bank has been raising its loan-loss provisions this year, which has, in turn, dragged down its earnings.
So far, for the first three quarters of the fiscal year, the bank reported adjusted earnings per share falling marginally to $6.16. At $83.10 per share, TD stock trades at a discount of about 13% from its long-term normal valuation. It also offers a decent dividend yield of 4.6%, which is about 15% higher than its normal levels of 4%.
What investors will get out of TD stock is safe dividend income that will grow over time. Its share price will also head higher, as the economy improves and the bank’s earnings rise over time. Over the next 10 years, it’s possible for investors to get total returns of north of 10% per year.
