Canadian Stocks That Likely Would Appeal To Charlie Munger
Our Conclusion
2023 has been a good year for most equity investors, but one specific
negative event for investment professionals was the death of Charlie
Munger, vice chairman of Berkshire Hathaway. Munger had an acidic wit and
a laser sharp ability to explain, in simple terms, his views on various
investment opportunities.
His focus on very large (mainly U.S.-based) companies earned him the
reputation as one of the world’s great long-term investors. This report serves
to remind us of some of his down-to-earth investment beliefs; and also
considers whether there are “Munger-like” investments under our own noses,
here in Canada.
Key Points
We used a variety of approaches to consider which members of the current
S&P/TSX would likely have withstood Munger’s critical gaze. We considered
long-term share price performance, track record of profitability, and industry
dynamics to establish a list of 20 “Quality” stocks that seem able to generate
above-average shareholder returns, in the long term.
In the Consumer and Communications sectors, our work argued for Couche-
Tard, North West, Metro, Dollarama, Sleep Country, and Telus. In
Financials, Intact, Royal Bank, TD, National and Great West made the list.
Industrial winners were the two railroads, Toromont and Waste Connection,
while Constellation, Enghouse, and CGI also scored well within IT. Our list
included two smaller Materials stocks – Stella Jones and CCL.
Not only did Munger search for quality businesses, he also needed their
stocks to be reasonably priced. In this report, we used a relatively simple
approach to evaluating this - forward P/E relative to growth rate and dividend
yield. The five stocks from our Top 20 that stood out were Intact, Sleep
Country, Toromont, Constellation, and Stella-Jones.
This is our last Portfolio Strategy report for 2023. With the robust equity
market over the past year, it is sometimes easy in North America to lose
sight of the extremely difficult and even dangerous circumstances facing
many people in the world today. We should remind ourselves how lucky
most of us are, in the investment business. Many thanks to you, our clients,
for your support, engagement, and feedback. All the best for 2024.