Top TSX stocks supported by strong companies have made multi-baggers for investors. And you don’t necessarily have to take great risks with small-cap stocks, as there are opportunities to be found in large-cap stocks.
Canadian Natural Resources
10-year CNQ Total Return Level data by YCharts
For example, according to YCharts, the stock of large oil and gas producer Canadian Natural Resources (TSX:CNQ), roughly grew investors’ money by 3.8 times over the last five years, essentially turning an initial investment of $10,000 into about $38,020 for an amazing annualized return of over 30% per year!
It’s easy to identify CNQ as a great stock in hindsight. The company highlighted some of its competitive advantages in its recent investor presentation, including having
- large, low-risk, and high-value reserves;
- a diversified, balanced asset base;
- flexible capital allocation; and
- effective and efficient operations.
It also has an investment-grade S&P credit rating of BBB-, which provides financial flexibility. Furthermore, CNQ has an excellent management team that is steering the business in the right long-term direction.
That said, the top energy stock has had a super run coming out of the 2020 pandemic. From the bottom of the 2020 market crash, the stock has 10 times investors’ money! An investor would need to be super brave and have high conviction to load up shares then. For those who bought in 2021 after the stock had stabilized and held shares until now would still have made a good amount of money — roughly 3.7 times their original investment.
Strong stocks could experience stock splits. It just so happens that CNQ will be having a two-for-one stock split with June 3 as the record date. Stock splits don’t change the economic value of your investment. So, it should not affect your investment decision on CNQ stock. That said, it’s viewed as a positive to see stock splits occurring for a stock versus a negative for having a reverse stock split.
10-year CSU Total Return Level data by YCharts
Constellation Software
Constellation Software (TSX:CSU) stock also did very well for its investors. According to YCharts, the tech stock grew investors’ money by roughly 3.1 times over the last five years, essentially turning an initial investment of $10,000 into about $31,120 for a superb annualized return of over 25% per year!
It is another business that has a great management team with excellent capital allocation that has driven high returns on invested capital. The company has increased its earnings at a fast pace by acquiring, managing, and building vertical market software businesses. Its earnings also seem to be recession-resilient based on its strong performance in the last two recessions, which saw adjusted earnings per share falling by only 1% and 6%, respectively.
Investor takeaway
In hindsight, the 2020 pandemic year was a fantastic opportunity to buy and make phenomenal wealth in great businesses on sale. Think of any black swan situation in which businesses have staying power and what’s the normalized earnings power of these companies. Staying power — that is, for example, having a solid balance sheet (manageable debt), profitable, durable cash flows. Today, analysts think these two stocks are fairly valued.
Past performance does not predict future performance; often, having the bravery to buy at super discounts in fearful market corrections and the ability to hold through multiple years (with lots of stock volatility in between) as the business executes helps tonnes for investors to make money long term.
