Long-term investing is a wise strategy because it benefits from the power of compounding while lowering short-term risks. It also requires less effort, as investors don’t need to regularly monitor the stocks’ performances. However, investors should choose stocks wisely, as not all stocks can deliver desired returns. Against this backdrop, let’s look at three top TSX stocks that offer compelling buying opportunities for long-term investors due to their solid underlying businesses and healthy growth prospects.
Hydro One
Hydro One (TSX:H) operates an electric power transmission and distribution business, with 99% of its business being rate-regulated and no material exposure to commodity price fluctuations. It has been expanding its rate base through organic growth, with its solid cash flows funding its expansion. Further, its unregulated business, which forms 1% of its total assets and 1% of its total revenue, offers additional growth opportunities. Supported by these stable performances, the company has returned 147.5% in the last eight years at a 12% annualized rate.
Further, Hydro One has committed to invest around $11.8 billion from 2022 to 2027, which could grow its rate base at an annualized rate of around 6%. Besides, it has been focusing on right-sizing its cost structure, which has generated productivity savings of $1.5 billion since 2016. Given these growth initiatives, the company’s management projects its EPS (earnings per share) to grow at 5-7% annually through 2027. Moreover, the electric utility company, which has been raising its dividends at an annualized rate of 5% since 2016, could raise its dividends at a 6% CAGR (compound annual growth rate). Considering all these factors, I expect the uptrend in Hydro One to continue, making it an excellent long-term buy.
Waste Connections
Waste Connections (TSX:WCN) is a waste management company operating in exclusive and secondary markets in the United States and Canada. The company has expanded its footprint through strategic acquisitions and organic growth, thus driving its financials and stock price. Over the last 10 years, the WCN has delivered impressive returns of over 595% at an annualized rate of 21.4%.
Meanwhile, the waste management company has completed 18 acquisitions this year as of July 24, which would contribute $500 million to its annualized revenue. Besides, it has signed multiple definitive agreements in the franchise markets, which the company expects to close this year. These acquisitions could contribute an additional $150 million of annualized revenue. Along with these inorganic growth initiatives, the company is focusing on constructing several renewable natural gas and resource recovery facilities, which could boost its organic growth. Considering its solid underlying business and healthy growth initiatives, I expect Waste Connections to deliver superior returns in the long run.
goeasy
goeasy (TSX:GSY), which offers leasing and lending services to subprime customers, has grown its loan portfolio at an annualized rate of 35% since 2019. Besides, its topline and diluted EPS have grown respectively at a 20.2% and 28.1% CAGR for the past five years. Meanwhile, the company has continued its uptrend this year, with its loan portfolio growing by 29% in the first two quarters amid loan originations of $1.5 billion. Meanwhile, its topline and adjusted net income grew by 25% and 26%, respectively. Supported by these solid financials, the company has returned 269% over the last five years at a 30% CAGR.
Despite its consistent performances, goeasy has acquired a small percentage of the $218 billion Canadian subprime market. So, its scope for expansion looks substantial. Given its extensive product range, multiple distribution channels, and geographical expansion, the company is well-positioned to increase its market share. Meanwhile, management expects its loan portfolio to grow around 50% from its current levels to $6.2 billion by 2026. Besides, its topline could grow at an annualized rate of 14% while expanding its operating margin from 38.1% in 2023 to 42% in 2026. Considering all these factors, I am bullish on goeasy.
