Investors can create substantial wealth by taking long-term bets on quality stocks. This strategy would help to overcome short-term fluctuations while benefiting from the power of compounding. However, investors should be careful when choosing stocks, as not all can deliver superior returns. Here are my three top picks.
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Dollarama
Dollarama (TSX:DOL) is my first pick, given its solid underlying business and healthy growth prospects. The discount retailer has expanded its store count from 652 in fiscal 2011 to 1,551 in fiscal 2024. Amid these expansions and solid same-store sales, the company’s revenue and net income have grown at a CAGR (compound annual growth rate) of 11.5% and 18%, respectively. Besides, its adjusted EBITDA (earnings before interest, tax, depreciation, and amortization) margin has expanded from 16.5% to 31.7%.
Amid this strong performance, Dollarama has returned around 745% over the last 10 years at an annualized rate of 23.8%. Meanwhile, it has planned to add 450 stores over the next seven years to increase its store count to 2,000 by fiscal 2031. Besides, its subsidiary, Dollarcity, which has an over 50.1% stake, is also expanding its footprint. Given its efficient capital model and quick sales ramp-up, these expansions could continue to drive Dollarama’s financials, thus boosting its stock price.
goeasy
Another stock that has the potential to deliver multi-fold returns is goeasy (TSX:GSY), which has been growing its top and bottom line at a CAGR of 19% and 28.6%, respectively, since 2013. Despite its solid growth, the company has acquired just 2% of the $218 billion Canadian subprime consumer credit market. So, it has substantial scope for expansion.
Meanwhile, goeasy focuses on offering products that cover a wide range of customers, expanding its dealer network and growing its point-of-sales financing business. With the growing credit demand, the company hopes its growth initiatives will expand its loan portfolio by 50% to around $6 billion by the end of 2026. Besides, the introduction of a next-gen credit model and enhanced underwriting and income verification processes could lower defaults, thus driving its financials.
goeasy has also rewarded its shareholders by raising its dividends at an annualized rate of around 30% over the last 10 years. Further, it trades at an attractive valuation, with its NTM (next 12 months) price-to-earnings multiple at 10.9, making it an excellent buy.
Waste Connections
My final pick would be Waste Connections (TSX:WCN), a waste management company that collects, transfers, and disposes non-hazardous solid waste. It operates in the secondary and exclusive markets of the United States and Canada, thus facing lesser competition and enjoying higher margins. Besides, the company is also expanding its footprint with strategic acquisitions, thus driving its financials at a healthier rate. Supported by its solid financials, the company has returned 560% over the last 10 years at a CAGR of 20.8%.
After acquiring assets that could contribute US$375 million to its annualized revenue, Waste Connections is continuing its acquisition activities, which would boost its financials in the coming quarters. Besides, the company is building renewable natural gas and resource recovery facilities, which could support organic growth. The company hopes to generate $200 million of incremental adjusted EBITDA from these facilities by 2026. Given its solid underlying business and healthy growth prospects, I expect Waste Connections to deliver superior returns in the long run.
