Bay Street is a funny place. Supposedly staffed by the world’s foremost financial minds, trained at elite business schools in Toronto, Montreal and the U.S., Bay Street’s firms are trusted by their clients to give them sound financial advice. To be sure, some at these firms know what they’re doing. However, far too many investment bank analysts tend to recommend stocks or IPOs on the basis of whatever is trendy, rather than what has good long-term profit potential. For this reason, they often end up issuing “screaming buy” ratings on bubble stocks near the top, most commonly during tech bubbles.
Knowing this, is there any way for you, the individual investor, to gain an edge over Bay Street? Certainly, the Street’s analysts and fund managers have more credentials than you do. However, they also have a disadvantage you don’t have: pressure. Bay Street professionals have clients and supervisors breathing down their neck demanding high returns over absurdly short time frames – per quarter, per week, or even daily! This myopia creates an advantage for long term-minded investors, including non-professionals who are completely out of the loop.
In many cases, companies that main street counts on are completely overlooked by Bay Street. As someone who shops for groceries and pays bills, you might interact with these companies every day. You may also need a little encouragement in believing what you’re seeing with your own eyes. With that in mind, here are three companies Bay Street is ignoring that main street can’t live without.
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Groceries – Metro
Metro (TSX:MRU) is a Canadian supermarket chain operating in Quebec and Ontario. It is well known for its wide selection of frozen and dry foods, similar to other grocery stores. What sets Metro apart is its market strategy. Instead of focusing on standalone mega-stores, it operates smaller locations often in malls and other diversified retail properties. This gives it a unique edge in catering to the upwardly mobile urban crowd, who live fast-paced lifestyles.
In recent years, Metro has been growing at a steady clip, with revenue, net income and earnings per share (EPS) up at a CAGR of 4%, 3.8% and 7%, respectively, over the last five years. The trailing 12-month (TTM) period showed a similar result, with revenue up 3.8% and earnings up 5.6%. Operating only in Quebec and Ontario so far, Metro has the opportunity to scale its franchise into other provinces and fuel more growth by doing so.
Utilities – Fortis
Fortis Inc (TSX:FTS) is a Canadian utility company that powers millions of homes across Canada, and even more in the U.S. and the Caribbean. It has one of the longest dividend growth track records on the TSX: 51 years and counting! The company is currently in the middle of an infrastructure upgrade project that will increase its rate base, likely driving revenue growth in the future. The stock yields 3.3% today and its dividend tends to rise over time. Overall, it’s a steady long-term performer.
Discount retail – Dollarama
Last but not least we have Dollarama Inc (TSX:DOL), a Canadian discount retailer that supplies some of the cheapest food products available in Canada. Products include “junk foods” (chips and pop) as well as basic grocery items such as white bread and canned food. The company is doing a lot of growth, with revenue and earnings both up close to 14% in the TTM period. The growth was even better over the last five years, with earnings compounding at a 21% CAGR in that period. Owing to its high growth, DOL has an apparently high price tag: 37 times earnings. If the growth continues for another 5–10 years, the price of admission won’t seem that high.
