Canadian investors looking to grow their retirement nest eggs, build resilient investment portfolios with potential to withstand market volatility, and consistently generate market-beating returns should give Constellation Software (TSX:CSU), Alimentation Couche-Tard (TSX:ATD), and Dollarama (TSX:DOL) stock some serious consideration. The three blue-chip TSX stocks have generated spectacular returns with historical consistency. And they could keep driving higher.
Let’s take a closer look.
Constellation Software
Constellation Software is a $78.6 billion blue-chip technology growth stock that has created millionaires since its initial public offering (IPO) in 2006. CSU stock has generated 20,233% in capital gains since going public, averaging a 34.9% compound annual return over the past 18 years, with minimal draw-downs of 25% at worst. Shares have already gained 14% so far in 2024.
The company is a global leader in the highly customized vertical market software (VMS) segment. Founded in 1995 by a former venture capitalist Mark Leonard who continues to lead the successful VMS aggregator, the company regularly acquires software businesses that serve niche markets. Resultantly, Constellation Software has a sticky client base, and generates highly visible profits and cash flows year in and year out. And the market has fallen in love with the consistently outperforming Canadian tech stock.
Constellation Software’s business strategy focuses on high returns on invested capital. The business model has, and most likely will continue to stand the test of time, even during the new age of disruptive generative artificial intelligence (AI).
Looking ahead, Constellation Software has modified its acquisition criteria to include larger businesses. The company recently raised US$1 billion from the debt markets, bolstering its acquisitions-led growth capacity.
Bay Street analysts project 40.1% growth in Constellation Software’s earnings per share over the next five years. Given a forward price-to-earnings (P/E) multiple of 35, CSU stock has a price-earnings-to-growth (PEG) ratio of 1, which implies shares are fairly priced given the company’s earnings growth potential.
Despite its 275% rally over the past half-decade, investors may still buy CSU stock at current prices and get a fair deal.
Alimentation Couche-Tard
Alimentation Couche-Tard is a $78.9 billion convenience store operator with a growing physical footprint. Since 1990, the grocery, fresh food, quick-service restaurant, and fuel services company has generated a staggering 447,230% in capital gains, including a 123% return during the past five years. ATD stock continues to outperform the market as it expands its global footprint, consistently generates positive cash flow, and sustains its share repurchase program.
The business of bringing convenience to North American, European, and Asian households remains profitable in 2024. Alimentation Couche-Tard grew revenue at an average rate of 13.6% over the past three years, its earnings per share surged by 7.9% during the period, and management increased the company’s dividend payout by 26.5%. All three data points added value to ATD stock.
Looking ahead, Bay Street analysts project a 10.9% long-term earnings growth rate for ATD stock. A forward PE of 17.8 and a forward PEG of 1.9 implies shares are currently trading at a reasonable premium to their fair value.
Meanwhile, Alimentation Couche-Tard usually repurchases its shares using its vast amounts of internally generated cash flow. The company has reduced its share count by 14.9% over the past decade, reducing the total claims on its future earnings and assets. The remaining shares are increasingly valuable.
Dollarama
Dollarama is a $28.8 billion Canadian discount store operator profitably selling everyday consumer products, seasonal items, and general merchandise to millions of people every year. Since its IPO in 2009, DOL stock has generated 3,300% in capital gains to investors, including a 659% gain during the past 10 years.
Why does Dollarama stock keep rising? The retailer is aggressively expanding its footprint. It had an annual target to add 60 to 70 new stores in 2023. Since acquiring a stake in Dollarcity in 2013, the company has expanded the banner from 15 stores in two countries to 500 stores across four countries in just a decade.
Most noteworthy, Dollarama reported its sixth consecutive quarter of double-digit same-store-sales growth in December 2023, grew its EPS by 31%, and delivered industry-leading gross margins. Bay Street analysts expect DOL to grow earnings by 17% over the next five years.
The value retailer is actively repurchasing shares. It reduced its share count by 31.1% over the past decade. The remaining shares are more valuable, and a PEG ratio of 1.8 implies investors are willing to pay a premium to gain exposure to the top TSX stock.
