It can be smart to go with the better business and pay a higher price of admission than opt for the seemingly dirt-cheap, deep-value play that you may find out is cheap for a reason after spending three or more years waiting patiently for Mr. Market to correct his pricing error.
As Warren Buffett once put it, it’s better to go for the “wonderful” business at a fair price than the “fair” business at a wonderful price. Such a rule has helped Buffett really score solid returns over the years. In this piece, we’ll look at a few proven market beaters that I view as fantastic companies that are worth owning at fair multiples.
Of course, it’d be nice to have one’s cake and eat it, too, with the stocks of wonderful companies priced at equally wonderful multiples. However, the opportunity to get these doesn’t come along all too often. And it may not be worth waiting around for them as, for the most part, other investors may have recognized such bargains and snatched them up before you’ve had a chance to hit the buy button.
Here are two TSX stocks that have been proven winners but aren’t all too overvalued. Arguably, I think they can keep up their winning ways over the next three to five years. So, if you’re a Canadian investor looking for top-tier exposure at reasonable, albeit not “steal” prices, consider the following stocks.
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Fairfax Financial Holdings
Fairfax Financial Holdings (TSX:FFH) stock looks lofty at more than $1,800 per share. Further, the stock chart seems to have blasted off in recent years, drawing concern for some who are put off by parabolic trajectories.
In many prior pieces, I’ve stated that FFH stock still looked like a great deal despite the hot run and that the name had legs to move even higher. At 7.98 times trailing price to earnings (P/E), FFH may just be one of those rare “have your cake and eat it, too” types of bargains.
The firm’s fundamentals are improving by leaps and bounds (the investment portfolio is robust, and insurance underwriting is doing well). Yet, the P/E multiple still doesn’t reflect the rate of improvement, at least in my view.
In its latest third-quarter earnings, underwriting was “outstanding.” Going into 2025, I expect them to stay that way, especially as top boss Prem Watsa looks to position his bets for Trump’s return to the Oval Office.
Waste Connections
Waste Connections (TSX:WCN) is a waste collection service provider that’s been a steady performer in recent years. Though WCN stock isn’t as blistering as FFH, the name has still slowly and steadily delivered for long-term investors. At writing, the stock goes for 23.6 times forward P/E — a fair multiple to pay for a simple, proven market-beater.
Only time will tell if shares of WCN can keep outperforming the TSX Index. As the firm continues wheeling and dealing in its industry, I’d say the low-risk growth profile makes WCN stock a name worth holding for decades at a time.
Also, the 0.7%-yield dividend is positioned for huge growth, making it an ideal play for a young investor who may want a fatter payout in the more distant future.
