Discover top TSX-listed companies for successful investing using these guidelines

Investing in TSX-listed companies can be most successful when you target a mix of blue chip, value, and growth stocks. Learn more in this article now

The TSX is the largest stock exchange in Canada and the third-largest in North America. The Toronto Exchange started on October 25, 1861. The TMX Group operates a number of stock and commodity exchanges, including the TSX.

Read on to learn about the qualities of the best TSX-listed companies to invest in.

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The background of the TSX index

The TSX is the abbreviated name for the Toronto Stock Exchange. You will see our stock recommendations on TSI Network accompanied by a TSX symbol. 

Of note is that the Toronto Stock Exchange has more oil and gas companies listed on it than any other stock exchange in the world. That’s also reflected in the S&P/TSX Composite Index, commonly called the TSX index.

Like most other major stock exchanges, the TSX index is highly regulated. The Toronto Stock Exchange lists common shares of companies, but also index securities like ETFs.

Look for these factors when considering an investment in top TSX-listed companies

  • We insist on political stability. For example, mineral exploration is risky enough without the threat of expropriation or onerous taxes.
  • We look for well-financed stocks with no immediate need to sell shares at low prices, since that would dilute the interests of existing investors.
  • We like to see a strong balance sheet with low debt. For junior stocks, we like to see a major partner who can finance a mine, software and so on to production.
  • We want to see experienced management with proven ability to develop and finance a new business.
  • We avoid stocks trading over-the-counter where regulatory reporting and so on is lax.
  • We avoid stocks trading at unsustainably high prices due to broker hype or investor mania.
  • We compare the market cap of the stock with the estimated value of its reserves, future product sales and so on.

Use these ratios as a starting point to finding value in the best TSX-listed companies

When we look for TSX-listed value stocks to buy, we usually start by looking at a few basic ratios. For example:

  • Low price-to-earnings ratio—a sign of a cheap or undervalued investment.
  • Low price-to-book-value ratio—another sign that the stock is cheap in relation to other stocks on the market.
  • High dividend yield—the stock’s annual dividend divided by the share price. A high dividend yield could indicate a cheap stock that is set to rise.

TSX-listed companies that are blue chip stocks are key components of Successful Investor Portfolios

TSX blue chip stocks are well-established companies with attractive business prospects on the Toronto Stock Exchange, like Bank of Montreal (TSE: BMO) and Enbridge (TSE: ENB). Well-established firms have the asset size and the financial clout—including solid balance sheets and strong earnings and cash flow—to weather market downturns like the COVID-19 pandemic or changing industry conditions.

The best TSX blue chip stocks have strong positions in healthy industries. They also have strong management that will make the right moves to remain competitive in ever-changing marketplaces. Blue chip investments should always be prominent, if not dominant firms, in their industry. 

Even with uncertainty, TSX-listed companies that are growth stocks can also make excellent long-term investments

By definition, TSX growth stocks are companies on the Toronto Stock Exchange that have above-average growth prospects. They are firms whose earnings growth has been—or is projected to be—above the market average, and will likely remain above average. Some pay small dividends, but most don’t pay dividends at all. Instead, they re-invest their cash flow in the business, to promote their growth. Examples of TSX growth stocks include CGI Group (TSX symbol GIB.A).

Although TSX growth stocks can be volatile, they can also make good long-term investments. They may be well-known stars or quiet gems, but they do share one common attribute: they will likely grow at higher-than-average rates within their industries, or compared to the market as a whole.

Use our three-part Successful Investor approach to pick the best TSX-listed companies

  • Hold mostly high-quality, dividend-paying stocks.
  • Spread your money out across most if not all of the five main economic sectors: Manufacturing & Industry, Resources & Commodities, Consumer, Finance and Utilities.
  • Downplay or stay out of stocks in the broker/media limelight.

Some controversial stocks are found on the TSX. Do you attempt to avoid stocks that come with controversy, or do you think controversial stocks can be even more profitable?

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