It might seem ridiculous that there could possibly be just one key metric that could help you beat the stock market. And you’re not wrong, of course. A lot goes on with companies and the TSX today that needs to be taken into consideration before investing.
However, there is certainly one key metric that can put you on the right path. And that’s why today we’re going to dig into it, and offer up one stock that can help you beat the TSX again and again.
ROE
One key metric that investors watch to see if they want to beat the TSX 60 is return on equity (ROE). The ROE measures a company’s profitability by showing how much profit it generates with the money shareholders have invested.
Companies with consistently high ROE tend to outperform those with lower ROE over the long term. Investors can look for companies with an ROE higher than the average ROE of the TSX 60 constituents to potentially beat the index.
In this case, the ROE would be the average ROE of the companies that make up the TSX 60. The top holdings of the TSX 60 come to an average ROE of 11.4 as of writing. Therefore, you will need a company to make a higher ROE than this.
The easy way out
Now you could start digging around through ROEs all over the place. But if you want a safe and stable company, then the TSX 60 is a great place to start out your search. In fact, you’ll simply need to go through the top investments to find the best ROE of the batch.
In this case, you’ll find a company with a large market capitalization, a long-term growth path, and proven ability to generate returns and investments.
Which is why investors will want to consider Canadian National Railway (TSX:CNR). CNR stock currently holds a whopping 27.1% ROE as of writing. So let’s look at what this company is doing right.
What this tells us
So what does an ROE of 27.1% tell us about CNR stock? First and foremost, it reveals that CNR is efficiently using shareholders equity to generate more profits. Far more than the average of the rest of the companies on the TSX 60.
This also points to the efficiency of management. A high ROE indicates that CNR’s management knows how to deploy the company’s assets to generate more earnings. And this is demonstrated by the company’s focus over the last few years.
CNR went from trying to grow during 2019 to 2021 to focusing back on being a premium, first class rail line. It’s looking to lower costs and generate more income, focusing on what it already has rather than attempt to find more.
This means investors are likely to see it deploy even more cash in a positive way over the years. So with an ROE this high, shares up 10.8% in the last year and a stable 33.4% profit margin, CNR stock looks like the best way to beat the TSX 60 today.
