Recently, Barron’s featured an article about the Janus Henderson Enterprise (MUTF:JAENX), which invests in mid-cap stocks with plenty of long-term growth.
However, unlike many mid-cap growth funds, this fund’s portfolio managers have managed to deliver for its investors, beating 94% of its peers in the Morningstar mid-cap growth fund category. How do they do it?
Co-managers Brian Demain and Philip Cody Wheaton lean into value with their growth picks. For example, the average mid-cap growth fund has a price-t0-earnings ratio (P/E) of 26.6. The average P/E for JAENX is just 19.0, nearly one-third less. So, in addition to scouring mid-cap stocks for sustainable growth, the duo also makes sure not to overpay for the companies they own.
And while it probably seems cliche, the CEOs of all three of the names I’ve selected are all highly respected leaders of Canadian-based companies. I know this for two reasons: I’ve been writing about Canadian stocks for over a decade. Secondly, I’m Canadian and read The Globe and Mail daily. You can’t go a day without one of them in the news for some reason.
Be sure to examine these three from its 82 holdings that stand out.
Constellation Software (CNSWF)
Constellation Software (OTCMKTS:CNSWF) has gained a reputation over the years. They historically build out vertical software platforms through many smaller acquisitions along with a dose of organic growth.
In recent years, its significant acquisitions have brought them bigger and better deals. Before the firm told investment bankers of plans to bid on bigger firms, it was only asked to bid on 16% of the software firms up for auction. Bankers concluded CEO Mark Leonard’s disciplined acquisition process wouldn’t allow it to pay premium prices. So, they pitched private equity firms instead.
On Sept. 15, its Perseus operating group completed its acquisition of two companies from Black Knight Inc. Those included Empower and Optimal Blue, both in the mortgage software space. Black Knight had been acquired by Intercontinental Exchange (NYSE:ICE) on Sept. 5. Constellation paid $700 million for Optimal Blue and approximately $400 million for Empower.
In the 17 years since Constellation went public in May 2006, its stock is up nearly 10,000%. That’s just a little better than the S&P 500.
Intact Financial (IFCZF)
Intact Financial (OTCMKTS:IFCZF), along with Constellation, are in the top 10 holdings of the Enterprise fund. The former sits in sixth position with a 2.55% weighting, and the latter holds the top spot at 3.48%.
Intact is Canada’s largest property and casualty (P&C) insurance company, with approximately 20% of the market. It’s grown dramatically over the years through successful acquisitions.
Since 1988, it’s made 18 P&C acquisitions, including the most recent purchase of U.K.-based RSA Insurance in June 2021. It got help from Scandinavian insurer Tryg A/S, who acquired RSA’s Swedish and Norwegian businesses for $6.0 billion while co-owning RSA’s Danish operations. Intact got RSA’s Canadian, U.K., and international businesses, paying $4.3 billion.
The acquisition increased its Canadian premiums written by 30% to $13 billion. Further, it expanded its specialty lines business by 30% to $4 billion annually.
Intact’s most significant issue is its catastrophe losses from devastating Canadian wildfires and floods. On Aug. 31, it reported that the enormous losses for the first two months of Q3 were 570 million Canadian dollars ($416.9 million) on a pre-tax basis.
CEO Charles Brindamour has been in the top job since January 2008, an impressive length of time to be at the helm. Intact’s total return since then is 501%, a compound annual growth rate of 12.94%.
When it comes to insurance stocks, Intact is a winner.
TFI International (TFII)
TFI International (NYSE:TFII) has built its business through a large number of acquisitions. CEO and founder Alain Bédard has been busy carefully buying trucking companies to build strength.
While not one of the fund’s top 10 holdings, TFI International represents approximately 1.2% of JAENX’s net assets as of Aug. 31. TFII stock has enjoyed a solid year in the markets, up nearly 26% year to date (YTD) and 258% over the past five years! That’s about 5x higher than JB Hunt Transport Services (NASDAQ:JBHT), a large U.S. trucking and logistics business.
The company’s Q2 2023 presentation reveals it made 85 acquisitions since 2014, with only four being $200 million or more. It prefers to acquire reasonably-priced businesses that fit into its asset-light business model, delivering exceptional returns on invested capital.
Where its peers’ capital expenditures range between 7.4% and 15.1% of total revenue, TFI’s is just 2.6%. It spends shareholder funds very judiciously. In addition, it generates 65.1% of its revenue in the U.S., with the remaining 34.9% in Canada. No single client accounts for more than 5% of revenue.
On the date of publication, Will Ashworth did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
