Over the past few years, the market has faced significant headwinds, causing many stocks to trade cheaply. And while you generally want to buy stocks while they are undervalued, the number one priority should be to buy the highest quality stocks on the market.
Buying stocks while they’re cheap can offer a compelling opportunity for returns as the market recovers and these stocks rally back to fair value.
However, not every stock always rallies back to fair value. And in many cases, the cheapest stocks are priced that way for a reason.
Furthermore, while the potential returns as stocks rally back to fair value can be enticing, those may be the only gains you see for a while, especially if the stock struggles to grow its operations meaningfully from year to year.
This is why high-quality stocks that are consistently growing their businesses are some of the best to buy. While a value stock may only offer you a year or two of capital gains potential, the highest quality stocks can offer years or even decades of growth potential.
However, because of their quality, these stocks often trade at a premium to the market. So it’s essential to have these stocks on your watch list and be prepared to buy should their share prices temporarily take a dip.
So, with that in mind, if you’re looking for the highest-quality stocks to add to your watchlist today, here are three of the best on the TSX.
Two of the top long-term growth stocks to buy for the long haul
When looking for the highest-quality stocks to buy and hold long term, it’s essential to look for businesses with impressive operations and a consistent track record of execution and growth.
That’s why two of the best stocks to buy when they’re cheap are Dollarama (TSX:DOL) and Alimentation Couche-Tard (TSX:ATD).
As you can see from the chart above, both stocks have rallied significantly and consistently for over a decade. When you factor in dividends, Dollarama has earned investors a total return of roughly 634% over the last decade, a compounded annual growth rate (CAGR) just shy of 22%. Meanwhile, Couche-Tard has earned investors a total return of 541% over that stretch, a CAGR of 20.4%.
One of the biggest factors in the success of both stocks and why they are such high-quality investments is that they are both consistently growing their operations, but they also each have defensive qualities that help make them more resistant to recessions than most stocks.
In Dollarama’s case, it has mostly grown organically, increasing its store count and same-store sales. The value proposition it offers customers continues to see an increase in demand, which has led to unbelievable growth for the stock.
In Couche-Tard’s case, its massive portfolio of convenience stores and gas stations located all over the world has also proven to be highly defensive. And with Couche-Tard demonstrating time and again that it can make value accretive acquisitions, as well as grow organically, it’s no surprise why it continues to be one of the best-performing stocks in Canada over the long haul.
Right now, both stocks trade right at their 52-week highs. And although you could still make a case for buying these stocks today, they’ll undoubtedly be no-brainer investments should their share prices temporarily fall.
A rapidly growing financial stock
In addition to Dollarama and Couche-Tard, a new stock emerging as a rapid and consistent growth stock is goeasy (TSX:GSY).
goeasy’s a financial stock that predominantly offers loans to consumers with below-prime credit ratings. So, it’s a stock that could certainly face headwinds should the economy worsen and delinquencies rise.
That’s part of the reason why the stock has been so cheap over the last year. Investors were worried goeasy would see a massive uptick in charged-off loans that would impact its profitability.
To its credit, though, goeasy, for years, has rapidly expanded its loan book, which has led to a massive jump in revenue and earnings. At the same time, though, it has kept its charge-off rate manageable.
Therefore, should this impressive growth stock pullback in the coming months, it would likely be one of the top stocks on the TSX to buy for the long haul.
