3 Hidden Gems Bay Street’s Brightest Are Buying

Companies like NFI Group Inc. (TSX:NFI) are favourites among fund managers and analysts alike.

| More on:
The Motley Fool

As individual investors, we don’t have nearly the time and resources available as our institutional counterparts when searching for potential opportunities in the market.

To narrow down what stocks we should consider, it is often productive to examine what successful investors currently have their sights on.

To that end, let’s take a look at several securities that appear among the top holdings of three outstanding small-/mid-cap mutual funds with 10-year annualized returns in excess of 13%.

The funds from which we will derive inspiration are the Mawer New Canada Fund, the BMO Enterprise Fund, and the HSBC Small Cap Growth Fund.

NFI Group (TSX:NFI)

Formerly New Flyer Industries, NFI is a market leading bus manufacturer with aftermarket parts and service operations in Canada and the United States.

With a total order backlog of over 11,000 units and more than 75,000 units in service as of September 30, NFI’s business is on a strong growth trajectory.

Speaking of growth, NFI has achieved stellar numbers — delivering compound annual sales growth in excess of 20% since 2012. Likewise, EBITDA has increased at an impressive clip, with average growth of roughly 40% per year in a five-year time frame.

The recent pullback in NFI’s share price has created a buying opportunity, as the stock now trades about a dollar above its 52-week low at a price-to-earnings multiple of close to 10 and at a price-to-book ratio of a little more than two.

Income seekers: quarterly dividends of $0.375, increased by approximately 15% in June, make for a yield in the neighbourhood of 4%.

Stella-Jones (TSX:SJ)

Nearly 70% of Stella-Jones’s sales are derived from railway ties and utility poles, two core businesses that have each grown nearly 500% since 2007.

An appealing element of the company’s main products is the constant demand; ties and poles are necessary for both the development of new infrastructure and the replacement of that which is aging.

Other operations in residential lumber, industrial products, and logs and lumber offer diversification to its offerings and have been new growth drivers for the company.

While the aforementioned sales numbers are encouraging, Stella-Jones’s 13 uninterrupted years of dividend increases has meant that the company has generously shared its success with its shareholders.

Increased by a little under 10% in March, the distribution now sits at $0.12, paid quarterly — good for a yield of slightly less than 1.2%. If history is an indicator, then shareholders can look forward to another bump in the payout come March 2019.

In terms of value, Stella-Jones trades at a price-to-earnings multiple of about 17 and a price-to-book ratio of just over two. Further, the company’s shares currently trade just a hair above their 52-week low.

Boyd Group Income Fund (TSX:BYD.UN)

This owner and operator of collision repair and auto glass shops is the only publicly traded company in its industry in North America.

With over 500 locations in Canada and the United States, Boyd’s size allows it to benefit from “Direct Repair Programs,” whereby the company’s services are preferred and trusted by major insurers. Roughly 90% of Boyd’s revenue is derived directly from insurers covering the cost of auto repairs.

Through acquisitions, Boyd is engaging in the consolidation of the US$38 billion North American auto collision market. In 2017 alone, the company added over 100 locations — seizing upon a fragmented market and using its extensive supply chain to drive down operating expenses.

Achieving a five-year EBITDA compound annual growth rate of over 35%, Boyd’s growth has been explosive. The company’s share price has also been on a tear, rising nearly 300% in the same period.

Trading at a price-to-earnings multiple of around 30 and a price-to-book ratio of more than four, Boyd would be pricey if its results weren’t so impressive.

Shareholders also enjoy a slowly growing monthly dividend of $0.044, which equates to a yield of roughly 0.5%.

Conclusion

All three of the stocks discussed above have been great performers, and continuous tailwinds should drive them to produce great results for both individual and institutional investors alike.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor James Watkins-Strand has no position in any of the stocks mentioned. NFI is a recommendation of Stock Advisor Canada.

More on Stocks for Beginners

Middle aged man drinks coffee
Dividend Stocks

Here’s the Average TFSA Balance at Age 35 in Canada

At age 35, it might not seem like you need to be thinking about your future cash flow. But ideally,…

Read more »

a man relaxes with his feet on a pile of books
Dividend Stocks

CPP Pensioners: Watch for These Important Updates

The CPP is an excellent tool for retirees, but be sure to stay on top of important updates like these.

Read more »

Piggy bank with word TFSA for tax-free savings accounts.
Stocks for Beginners

2 Top TSX Growth Stocks to Stash in a TFSA for Life

These two growth stocks may not be the top in the last month, but in the last few years, they…

Read more »

people relax on mountain ledge
Dividend Stocks

Invest $10,000 in This Dividend Stock for a Potential $4,781.70 in Total Returns

A dividend stock doesn't have to be risky, or without growth. And in the case of this one, the growth…

Read more »

TFSA (Tax free savings account) acronym on wooden cubes on the background of stacks of coins
Dividend Stocks

How to Turn a $15,000 TFSA Into $171,000

$15,000 may not seem like a lot, but over time that amount can balloon into serious cash.

Read more »

A worker uses a double monitor computer screen in an office.
Stocks for Beginners

Why I’d Buy Fairfax Financial Stock Even at Today’s Prices

Fairfax stock just keeps edging higher. But is it now too expensive, or can investors just look forward to even…

Read more »

Piggy bank in autumn leaves
Dividend Stocks

A 5.6% Dividend Yield? I’ll be Buying This TSX Stock for Decades!

This Big Six Bank offers a large dividend, growth strategy, and stability. In short, it offers it all!

Read more »

Concept of multiple streams of income
Stocks for Beginners

Lock Up This 9.2% Dividend Yield From a Top Royalty Stock

Royalty stocks have a strong advantage when it comes to creating passive income for investors. But this one has the…

Read more »