Equity markets have the potential to deliver game-changing returns over time and even accelerate your retirement plans by a few years. While index investing is among the best ways to gain exposure to the stock market at a low cost, investors can consider buying shares of quality companies to derive outsized gains.
You need to identify companies that are poised to keep expanding their cash flows and earnings, allowing them to outpace the broader markets over time. Here are three such stocks to help you retire rich.
GFL Environmental stock
Valued at $14.5 billion by market cap, GFL Environmental (TSX: GFL) is part of a recession-proof industry. It provides services that include solid waste management, liquid waste management, and soil remediation through its facilities located in Canada and the U.S.
Despite a sluggish macro environment, GFL increased revenue by 10.3% year over year in the third quarter (Q3) after excluding non-core asset divestitures. Its stellar top-line growth was driven by the solid waste core pricing increase of 8.8%.
The company also experienced margin improvement in Q3 across its businesses as the adjusted EBITDA (earnings before interest, tax, depreciation, and amortization) margin rose by 250 basis points year over year.
GFL completed the divestiture of certain non-core assets in Q3 and reinvested a portion of these proceeds in higher-margin organic growth initiatives such as RNG projects and new contract wins.
Amid a high interest rate environment, GFL reduced its borrowing costs by 60 basis points and remains committed to de-levering its balance sheet. Priced at 31 times forward earnings, GFL stock trades at a discount of 25% to consensus target estimates.
EQB stock
An undervalued TSX banking stock, EQB (TSX: EQB) should be part of your equity portfolio in 2023. Down 14% from all-time highs, EQB offers shareholders an annual dividend of $1.52 per share, translating to a yield of over 2%.
EQB reported record earnings in the June quarter due to its acquisition of Concentra Bank, steady portfolio growth, sequential margin expansion, higher non-interest revenue, and efficiency improvements.
Priced at less than seven times forward earnings, EQB stock is really cheap, given Bay Street expects adjusted earnings to grow by 19.5% annually in the next five years.
Analysts remain bullish and expect EQB stock to surge over 35%, given consensus price target estimates.
Microsoft stock
The final stock on my list is Microsoft (NASDAQ: MSFT), among the largest companies globally. Valued at almost US$3 trillion by market cap, Microsoft leads several growth markets such as enterprise software, public cloud, artificial intelligence, and gaming.
Azure, which is Microsoft’s public cloud business, remains a key driver of revenue growth for the company. In the June quarter, Azure and other cloud services grew sales by 29% year over year. Comparatively, Amazon’s Web Services and Alphabet’s Google Cloud grew public cloud sales by 12% and 22%, respectively, in Q3. Microsoft now forecasts Azure sales to grow between 26% and 27% in fiscal 2024 (ending in June).
Priced at 32.6 times forward earnings, MSFT stock might seem expensive. But analysts estimate its earnings to grow by 16.2% annually in the next five years.
