Investing in stocks is a wild ride. The Canadian stock market dipped as much as approximately 9% from September to October. However, we also witnessed a quick rebound of about 5% in the market. Some stocks sold off even more severely, but they could experience stronger rebounds.
If history is telling, a bull market will eventually come. Since growth stocks are able to compound returns at high rates, they could create some serious wealth for long-term investors. So, investors should not overlook top TSX stocks like Canadian Pacific Kansas City (TSX:CP) and Brookfield Asset Management (TSX:BAM).
Canadian Pacific Kansas City
Canadian Pacific stock has outperformed the market in the long run. Consequently, it has resulted in massive wealth creation. For example, early investors of the railway stock could have grown an initial investment of $10,000 into about $466,660 versus the same investment in the market that grew to only $48,490, as shown in the chart below.
XIU and CP Total Return Level data by YCharts
CP stock returns were essentially flat and underperformed the market over the past 12 months. This weakness could be a good opportunity to buy shares. Since the railway stock offers a small dividend yield of less than 1%, investors really need to target price appreciation to get a good return on the stock.
XIU and CP Total Return Level data by YCharts
As one of only two class-one railways in Canada, CP enjoys a wide moat with efficient scale and cost advantages. To be sure, it has a track record of achieving high returns on equity. For example, its five-year return on equity is approximately 26%. Its five-year return on assets and return on invested capital also beat the market at about 9% and 14%, respectively.
CP’s merger with Kansas City Southern and, therefore, extension into Mexico could help drive its next leg of growth. Over the next three to five years, it’s estimated to grow its earnings per share by about 15% per year. So, at about $101 per share, trading at a price-to-earnings-to-growth ratio of close to 1.8, the growth stock appears to be reasonably priced.
Brookfield Asset Management
Brookfield Asset Management is a leading global alternative asset manager with approximately US$850 billion of assets under management (AUM) — roughly half is fee-bearing capital. Its AUM is diversified across renewable power and transition, infrastructure, private equity, real estate, and credit. Since it was only spun off from its parent company in December 2022, it doesn’t have a long trading history that we can observe.
That said, it has demonstrated extraordinary returns on its investments over the long term. For its funds that have a history of at least 12 years, it attained net rates of return of 10% to 22%. It plans to double its business size over the next five years, with the fee-bearing capital growing to roughly US$1 trillion. Given patience, investors should be able to enjoy excellent long-term returns in the reasonably valued stock. Investors also appreciate its decent dividend yield of about 4.1%. Analysts estimate that BAM trades at a discount of about 16% at $42.35 per share.
Over the last 12 months, BAM increased its distributable earnings by about 8%. This may be a slower growth rate than investors expect. Interested investors can consider buying shares on weakness.
