Investing in the equity markets can be both enticing and tricky. While the stock market has delivered inflation-beating returns to shareholders over several decades, just a handful of companies have driven the majority of these gains.
It is almost impossible for the average investor to identify winning bets consistently due to the ever-changing nature of businesses. For instance, just imagine investors who were once bullish on mobile phone manufacturers such as Nokia and BlackBerry. Both tech stocks delivered exponential gains to investors in the 2000s but burned massive wealth in the following decade.
It’s much better for new investors to gain exposure to low-cost, passively managed index funds rather than investing in individual companies.
Alternatively, investing in quality stocks that have the potential to thrive across business cycles can help you derive outsized returns and beat the broader markets by a wide margin. Here, you need to invest in companies that are part of mature business segments while growing at a fast pace.
These companies should enjoy a competitive moat resulting in stable cash flow generation in good times and bad. Here are two such TSX stocks I plan to hold forever.
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Alimentation Couche-Tard stock
Valued at $77 billion by market cap, Alimentation Couche-Tard (TSX:ATD) is among the largest companies in Canada. It has already returned 533% to shareholders in the past decade and a staggering 4,300% in the last 20 years.
Part of a recession-resistant sector, ATD operates and licenses convenience stores in North America, Europe, and Asia, serving millions of customers each day. With operations in 29 countries, ATD has more than 16,700 stores.
Despite its massive size, ATD continues to expand at an enviable rate. It recently completed the acquisition of certain European retail assets from TotalEnergies. The acquisition includes 100% of TotalEnergies’s retail assets in Germany and the Netherlands and a 60% controlling interest in Belgium and Luxembourg.
These assets include 2,175 sites, providing ATD with an opportunity to gain traction in four new countries and expand its reach in Europe.
Priced at 18 times forward earnings, ATD stock is not too expensive, given its earnings are forecast to grow by 10% annually in the next five years.
GFL Environmental
Another large-cap TSX stock on my list is GFL Environmental (TSX:GFL), a company involved in the waste management space. It is the fourth-largest diversified environmental services company in North America.
GFL’s growth capital expenditures this year will focus on sustainability investments and its M&A (mergers and acquisitions) strategy. It expects to deploy between $250 and $300 million to renewable natural gas projects and opportunities under extended producer responsibility legislation.
Moreover, the company has allocated between $600 million and $650 million in M&A opportunities within existing geographies.
According to GFL, its EPR-related investments should generate incremental adjusted EBITDA (earnings before interest, tax, depreciation, and amortization) between $40 million and $50 million.
During its Q3 earnings call, GFL emphasized it expects adjusted EBITDA of at least $2.2 billion in its base business this year, providing it with the cash flow to de-lever its balance sheet.
