In December, Canadian inflation rose 3.4%, higher than the 3.1% in November. With inflation showing signs of not cooling down and the expectation of a global economic slowdown amid the impact of rising interest rates, the equity markets have turned volatile this month. However, investors with longer investment horizons should not be bothered by these fluctuations and look to invest in quality stocks to earn superior returns in the long run.
Here are three stocks with solid underlying businesses and healthy growth potential to deliver superior returns over the next 20 years.
Dollarama
Dollarama (TSX:DOL) is a discount retailer offering a range of products at attractive prices. The company is able to provide its products at attractive prices through its superior direct sourcing abilities, cost-effective growth-oriented business model, lean operations, and efficient logistics. So, the value retailer is witnessing healthy footfalls even during this challenging period. Besides, it has expanded its presence by opening 60 to 70 new stores yearly, thus driving its financials.
Since fiscal 2011, the company’s revenue and EBITDA (earnings before interest, tax, depreciation, and amortization) grew at a CAGR (compound annual growth rate) of 11.3% and 16.8%, respectively. Despite its aggressive expansion, its EBITDA margin improved from 16.5% in fiscal 2011 to 31%. Supported by solid financials, the company has returned around 630% over the last 10 years at a CAGR of 22.1%.
Meanwhile, Dollarama has planned to expand its store count to 2,000 by 2031, representing an increase of 559 from its current levels. Besides its subsidiary, Dollarcity, expects to add 370 new stores by 2029. Its store expansions and solid underlying businesses could continue to drive its financials in the coming years. So, I believe Dollarama would be an excellent buy.
Waste Connections
Waste Connections (TSX:WCN), which collects, transfers, and disposes of non-hazardous solid wastes, would be my second pick. The company has expanded its presence across the United States and Canada through organic growth and strategic acquisitions. Besides, it operates primarily in secondary and exclusive markets, thus facing lesser competition and enjoying higher margins.
Last month, the company signed an agreement with Secure Energy Services to acquire 30 energy waste treatment and disposal facilities for $1.1 billion. These acquisitions could add around $300 million to its annualized revenue while expanding its EBITDA margin by 50 basis points. Besides, the company has 12 renewable natural gas projects in development. It also has two recycling facilities under construction, which could become operational this year. Given these growth initiatives and the solid underlying business, I believe Waste Connections would be an excellent long-term buy.
Shopify
My final pick would be Shopify (TSX:SHOP), which provides essential infrastructure to help businesses worldwide do commerce. With the increased adoption of the omnichannel selling model, the demand for the company’s services is rising. Meanwhile, the company is introducing new products, adding AI-enabled (artificial intelligence) features across its products, and expanding geographically, which could continue to drive its financials. Further, the company is also focusing on improving its efficiency through automation and process improvements, which could improve its profitability.
Meanwhile, Shopify has been witnessing healthy buying since the beginning of the fourth quarter. Its stock price has increased by over 47% during this period. Despite the surge, it still trades at around a 50% discount compared to its 2021 highs. Given its high-growth prospects and discounted stock price, I am bullish on Shopify.
