It’s essential to have a long-term horizon while investing in the equity market to benefit from the power of compounding. While the stock markets are expected to remain volatile in the next 12 months due to macro headwinds such as higher interest rates, inflation, and sluggish consumer spending, the time is ripe to hold reasonably valued companies and generate outsized gains when sentiment improves.
Here are three such Canadian stocks I plan to hold forever.
Hammond Power Solutions stock
Hammond Power Solutions (TSX: HPS.A) is a TSX stock that has generated game-changing wealth for investors in the past two decades. Since December 2003, Hammond Power stock has returned a staggering 30,370% to shareholders.
Despite its market-thumping gains, the TSX stock is valued at $956 million by market cap and priced at 14.6 times forward earnings, which is very reasonable.
Hammond Power aims to enable electrification through its broad range of transformers and quality products. Its portfolio of products is essential in electrical distribution networks through a wide range of end-user applications.
Despite a challenging macro backdrop, Hammond Power increased sales by 20.5% year over year to $179 million, while net income grew 25% to $14.4 million in the third quarter (Q3) of 2023.
Moreover, Hammond increased its backlog by 40.3% year over year due to a combination of price increases and strong demand.
GFL Environmental stock
Valued at $14 billion by market cap, GFL Environmental (TSX: GFL) is part of a recession-resistant sector, involved in the non-hazardous solid waste management business. GFL is committed to making disciplined capital allocation decisions to generate outsized returns and delver its balance sheet, as it focuses on moving towards an investment-grade credit rating.
GFL has allocated between $250 million and $300 million in 2024 in renewable natural gas projects and other infrastructure as well as between $600 million and $650 million in mergers and acquisitions.
The total capital deployed by GFL in these growth opportunities will not exceed $900 million, as it has forecast capital expenditures at $875 million at the midpoint estimates.
Priced at 31 times forward earnings, GFL stock trades at a discount of 23% to consensus price target estimates.
Waste Connections stock
The final stock on my list is Waste Connections (TSX: WCN), another TSX giant valued at $49 billion by market cap. Similar to GFL, Waste Connections also provides waste collection, recovery, and disposal services in Canada and the U.S.
In the last two years, Waste Connections has acquired small landfill operators, which has dragged GAAP (generally accepted accounting principles) lower. But after accounting for nonrecurring expenses, its earnings have grown by 5% year over year in the last three quarters.
Moreover, earnings before interest, taxes, depreciation, and amortization have surged by 13% in this period.
Waste Connections stock offers shareholders a yield of 0.83%, which is not too attractive. But these payouts have risen by almost 12% in Q3 and are up close to 500% in the past 12 years.
Priced at 30 times forward earnings, WCN stock trades at a discount of 18% to consensus price target estimates.
