Are you looking for high quality stocks to buy and hold forever in your RRSP?
They’re not the easiest thing in the world to find: countless former quality companies lost their lustre and ceased to be worth owning. Though a company may seem like it’s going to last forever, it may be no more than one bad quarter away from being exposed as a shoddy business.
However, there are indeed some companies that an investor can legitimately expect to last, and perform well for a long time too. These companies typically score well on the ‘quality’ factor, and have some degree of operational diversification. In this article, I will explore two such companies whose shares may well be worth buying and holding forever. One of them I am in fact holding with a long-intended holding period.
Brookfield
Brookfield Corp (TSX:BN) is a Canadian financial services conglomerate that operates in asset management, insurance, renewable energy, infrastructure, and real estate. The company’s insurance business has high growth, and it may be a catalyst for future price appreciation. A quality stock, Brookfield may be worth holding in your RRSP.
One of the biggest things Brookfield has going for it is its “sum of the parts” value. “Sum of the parts” is a valuation technique whereby you try to find the values of a company’s subsidiaries, and then assign a value to the whole company based on that. In many cases, this type of valuation is hard to do because you can’t really know what the “parts” of a company are worth unless you offer them for sale. In Brookfield’s case, it is easier, because its subsidiaries are publicly traded. Their financials are available for all to see.
A Value Investors’ Club user found that Brookfield’s “parts” (i.e., its partnerships) are worth US$51.5 billion, or $71 billion. The publicly traded part of Brookfield Asset Management (TSX:BAM) was worth $22.2 billion at the end of last quarter, which means Brookfield’s stake is worth $66 billion. If you add up the partnerships’ net asset values and BAM’s market value, you arrive at a $137 predicted market capitalization (i.e., the value of all the shares combined). The stock price at such a market capitalization would be $89, but BN actually costs a mere $60.44. So, this sum of the parts valuation leaves Brookfield with a 47% upside.
Alimentation Couche-Tard
Alimentation Couche-Tard Inc (TSX:ATD) is another high quality TSX stock that may be a good long-term RRSP holding. The company’s business is a mix of energy sales and merchandise sales. So it’s partially an energy play without being totally dependent on high oil prices like “pure play” oil companies are. That’s part of why you might want to buy it. However, the real draw here is management skill. ATD’s managers have re-invested their profits into their business consistently over the years, resulting in a rapid expansion and relatively low debt. ATD has a 1.2 debt-to-equity ratio, which is relatively low for a company that has expanded as quickly as this one has. Overall, ATD is very well run. It could potentially do well over a very long period of time.
