One of the benefits of investing in the Canadian stock market is you can identify the market leaders with relative ease. Contrasted with the U.S. market and its dog-eat-dog competition that constantly threatens to unseat the current incumbents, Canadian markets have some established market leaders whose competitive positions are fairly untouchable. Usually, these companies are among the best performing in the nation’s markets. In this article, I’ll share where I’d invest $10,000 across three Canadian market leaders for sustained performance.
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Alimentation Couche-Tard
Alimentation Couche-Tard (TSX: ATD) is one of the undisputed leaders in Canadian gas stations. It operates the famous Circle K gas station chain that is established in most provinces, the Couche-Tard chain in Quebec, and various subsidiaries in the European Union. The company is well known for its long-term compounding track record, which has been achieved without taking on too much debt.
ATD stock has declined a bit in price over the last 12 months. Reasons for the selloff include a few bad earnings releases and an offer to buy Japan’s 7-Eleven for a price that looks pretty high. I am of the opinion that ATD’s offer price for 7-Eleven was a little high by the standards of Japanese merger and acquisition deals, and the deal appears unlikely to go through. So, what you’ve got here is a company with solid revenue growth, a great brand, and a track record of prudent acquisitions, trading at a 52-week low. It may be worth a look.
TD Bank
Toronto-Dominion Bank (TSX: TD) is a Canadian bank stock and one of the biggest holdings in my personal portfolio. The stock has many things going for it: high profit margins, a decent amount of historical growth, and a cheap valuation (10.8 times earnings and 1.3 times book). The company currently has a buyback program underway that is very large as a percentage of the company’s market cap (about 5%).
The dividend yield is also 5% and is well covered by earnings, so it looks like we have a pretty safe 10% shareholder yield here. The company’s U.S. retail segment has had its growth kneecapped by an asset cap, but on the flip side, funds withdrawn from that segment are funding the buyback. So, it may all work out in the end.
Suncor Energy
Suncor Energy (TSX: SU) is a Canadian integrated energy company whose shares trade at just 9.2 times earnings despite very high profit margins and a strong competitive position. Suncor has an entrenched position in Canada’s oil and gas sectors, bolstered by high-quality drilling operations, refineries, and a popular coast-to-coast gas station chain.
Suncor stock took a bit of a beating this year because of a minor dip in oil prices, but the company remains profitable, with oil prices much lower than the current ones. It has a pretty high dividend yield (4.5%) and an ongoing buyback program worth 10% of the market cap. If we assume the 10% buyback will be done all this year, then the stock has a 14.5% shareholder yield! I can’t guarantee that the buyback will actually be concluded all this year, but the value here is nonetheless considerable.
