Finding stocks that can beat the broad TSX Index may sound easy on paper. But there’s more than checking the past couple of years’ worth of performance to picking the winners poised to put the broad markets to shame. For investors with a truly long-term horizon (at least five years), some proven durable growers with wide economic moats and solid growth narratives are worth hunting down whenever their valuations fall to modest levels.
Indeed, it’s hard to find such incredible companies at sizeable discounts. Either way, if you’ve got considerable sums of cash to invest (let’s say you haven’t put your latest $7,000 Tax-Free Savings Account (TFSA) contribution to work in the past few quarters), it’s not too bad an idea to pay a fair multiple for a proven over-achiver, provided that the fundamentals stand to improve with time.
Of course, buying such stocks at slight discounts in market corrections (dip-buying) has been a proven way to go in recent years. But given the market’s resilience, retail investors‘ hunger for buying more shares on weakness, and the longer-term earnings-driving potential of artificial intelligence (AI) and other technologies, I see little issue with initiating a position in a Canadian stock that’s found a formula to outpace the broad markets over a lengthy period of time.
In this piece, we’ll focus on two intriguing names that have had their way in and could continue to beat the TSX Index for extended durations.
Loblaw
If you held onto shares of Loblaw (TSX:L) for the last five years, you’d be sitting on a 220% gain. Indeed, that’s not typical for a plain, old-fashioned grocer, especially one behind such banners as No Name. In any case, Loblaw has been able to keep executing and meeting demand for low-cost products in the middle aisle, frozen section, and just about everywhere. Life is getting expensive, and until deflation makes things more affordable (don’t count on it; more inflation is the likeliest scenario as the Bank of Canada continues slashing rates), I see Loblaw continuing to take (and retain) market share.
Given that the Canadian grocery scene is dominated by a number of players, I see a massive moat surrounding Loblaw, the firm behind such names as Superstore, the upscale Loblaw City Market, drugstore staple Shoppers Drug Market, and low-cost No Frills and No Name stores.
What I find most remarkable about Loblaw is that it’s crushed the market while exhibiting minimal volatility in a climate facing so many uncertainties. But that’s to be expected for a consumer staple, right?
With a 0.38 beta, L stock indicates a potential for a smoother upward trajectory. As the company continues to enhance same-store sales as Donald Trump’s tariffs encourage Canadians to shop locally, I see L stock continuing its run.
At 28.1 times trailing price-to-earnings (P/E), you’re paying a fair price for a stellar business with management that knows how to get the job done (efficiently) in all sorts of environments. Whether prices go higher, move down, or stay the same, look for Loblaw to make a move to win over the business of its loyal shoppers.
If you want to play defence without compromising on returns, Loblaw stock looks way too cheap to pass up right here.
