BN:CC - Paying it Forward: 3 Stocks That Could Create Lasting Generational Wealth
2023-09-19 10:00:00 ET
Do you want to create lasting generational wealth by investing in the stock market?
If so, I have some good news and some bad news for you.
The good news is that getting rich in the stock market is possible. The bad news is that most who attempt to do it fail. You only need to look at the long-term charts of the world’s best companies to see that getting rich in stocks can theoretically happen. A $10,000 investment in Berkshire Hathaway when Warren Buffett took it over would be worth $37.8 million today! However, a $10,000 investment in Enron the day its scandal began would be worth $0 today. Many people have low-quality stocks in their portfolios, which is why not everybody trying to get rich in stocks succeeds at it.
In this article, I will explore three high-quality Canadian stocks that should deliver adequate results over the long run.
CN Railway
Canadian National Railway ( TSX:CNR ) is Canada’s largest railroad company. It is one of only two major rail transporters in Canada, which means that it does not face a lot of competition. A lack of competition is a good thing (from a shareholder’s perspective), because it gives a company high margins and pricing power.
CN Railway is a very profitable and growing company. In the most recent 12-month period, it had a 30% net income margin and a 21% free cash flow margin. These figures suggest that the company is very profitable. It’s also growing fairly quickly. Over the last three years, CNR has grown its revenue by 5.5% per year, its dividend by 11.1% per year, and its earnings by 10.2% per year. On the whole, it is a high-quality business.
Brookfield
Brookfield ( TSX:BN ) is a Canadian financial holding company. Its business activities include property investing, insurance, and asset management. Previously, it was pretty much a pure-play asset management company, but lately it has branched out into other activities.
The main virtue that Brookfield has right now is cheapness. The stock trades at 0.6 times sales, 1.12 times book value, and 8.6 times operating cash flow. This is a fairly modest valuation. Despite the cheapness, Brookfield is actually growing. Over the last 12 months, its insurance business grew by 246%, and the whole company’s revenue grew by 11.5%—a solid showing of growth by any standard.
Brookfield is headed up by Bruce Flatt, one of Canada’s most admired chief executive officers. Since Flatt took over, Brookfield has grown its investments by about 16% compound annual growth rate, which is a better rate of return than Berkshire Hathaway itself! Overall, Brookfield stock is very much worth researching further.
Brookfield Asset Management
Brookfield Asset Management ( TSX:BAM ) is a part of Brookfield Corp. Brookfield owns 75% of the company, while shareholders like you and me own the remaining 25%.
Brookfield is one of the most profitable companies in Canada. Over the last 12 months, it delivered the following profitability metrics:
- A 75% gross margin
- A 65% operating income (earnings before interest and taxes) margin
- A 53% net margin
- A 22.5% return on equity
These profitability metrics are frankly off the charts. You’ll often hear investors brag when a stock they own has a 50% gross margin, and here’s BAM putting out such a figure for its net margin. That’s practically unheard of! On the whole, BAM is a very high-quality business that will probably treat shareholders well over the long term.
The post Paying it Forward: 3 Stocks That Could Create Lasting Generational Wealth appeared first on The Motley Fool Canada .
Fool contributor Andrew Button has positions in Berkshire Hathaway, Brookfield, and Brookfield Asset Management,. The Motley Fool recommends Berkshire Hathaway, Brookfield, Brookfield Asset Management, Brookfield Corporation, and Canadian National Railway. The Motley Fool has a disclosure policy .
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