1 Undervalued Pick That Will Outperform for the Next 5 Years

Alimentation Couche Tard (TSX:ATD.B) is tremendously undervalued given the growth potential. If there’s one stock you should own, it’s this one.

There’s no question that the markets have been volatile lately. Whether it’s the election or the Fed threatening to raise rates, there will always be a reason for investors to panic. Nobody expected that the Dow and the TSX would be hitting 52-week highs after a Donald Trump won the election to become the next president of the United States. The fear gauge was through the roof, yet despite many pundits predicting a market correction, the contrary actually happened.

That’s why it pays to be a contrarian when investing, and sometimes it pays to turn off the noise. As an investor, your job is to pick fantastic stocks with durable competitive advantages at huge discounts to intrinsic value. When the media makes speculative statements, like those experienced before the election, it can cause investors to lose track of long-term goals, which is to maximize returns while reducing risk.

As Charlie Munger once said, to be a great investor you “[b]uy stocks and sit on your ass,” meaning once you buy, you hold it and do nothing. This is how you generate long-term returns–not by jumping in and out of the market every time a bad news happens.

As the markets slowly climb to new highs, there is one stock on the TSX that I believe is a true forever company that will continue to outperform for years to come. The business is a typical Charlie Munger business, and you can hold it for many years down the road.

I’m talking about Alimentation Couche Tard Inc. (TSX:ATD.B), which I believe is a fantastic growth stock that is resistant to recessions. Despite having an impressive performance the last few years, I still believe the stock is just getting started.

The managers are true “Buffettarians”; they only acquire companies where there is the opportunity to bring value to shareholders. The management team is very capable and will continue to deliver very strong results through synergies on future acquisitions.

The convenience store business is still very fragmented, and it’s nowhere close to being saturated. This is where Alimentation Couche Tard has the opportunity to grab the convenience store industry by the horns. Growth is nearly unbounded, and the growth strategy is based on value principals.

I have no doubt that Warren Buffett would approve of this company, especially since it has a huge moat in the large number of stores it owns in areas where it can deliver a huge return on equity. Earnings continue to climb year after year, and the stock price will follow shortly.

Given the earnings growth and potential of the company, I believe shares are a steal right now. The stock trades at a 21.5 price-to-earnings multiple, which is considered deep value in an environment where it’s difficult to find value, as markets continue to climb to new highs.

I would pick up shares now. There is a huge margin of safety involved at current levels. The median price target is $78 a share, which is a whopping 25% of upside from current levels, not including dividends.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Joey Frenette has no position in any stocks mentioned. Alimentation Couche Tard is a recommendation of Stock Advisor Canada.

More on Investing

Nuclear power station cooling tower
Metals and Mining Stocks

If You’d Invested $1,000 in Cameco Stock 5 Years Ago, This Is How Much You’d Have Now

Cameco (TSX:CCO) stock still looks undervalued, despite a 258% rally. Can the uranium miner deliver more capital gains to shareholders?

Read more »

Businessman holding tablet and showing a growing virtual hologram of statistics, graph and chart with arrow up on dark background. Stock market. Business growth, planning and strategy concept
Dividend Stocks

TFSA Magic: Earn Enormous Passive Income That the CRA Can’t Touch

If you're seeking out passive income, with zero taxes involved, then get on board with a TFSA and this portfolio…

Read more »

Man with no money. Businessman holding empty wallet
Dividend Stocks

2 Stocks Under $50 New Investors Can Confidently Buy

There are some great stocks under $50 that every investor needs to know about. Here’s a look at two great…

Read more »

potted green plant grows up in arrow shape
Stocks for Beginners

3 Growth Stocks I’m Buying in April

These three growth stocks are up in the last year, and that is likely to continue on as we keep…

Read more »

clock time
Tech Stocks

Long-Term Investing: 3 Top Canadian Stocks You Can Buy for Under $20 a Share

These three under-$20 stocks offer excellent buying opportunities for long-term investors.

Read more »

Arrowings ascending on a chalkboard
Energy Stocks

Beat the TSX With This Cash-Gushing Dividend Stock

Canadian Natural Resources stock is well set up to beat the TSX as it continues to generate strong cash flows…

Read more »

think thought consider
Dividend Stocks

Down 10.88%: Is ATD Stock a Good Buy After Earnings?

Alimentation Couche-Tard (TSX:ATD) stock might not be the easy buy-case it once was. Here’s a look at what happened.

Read more »

money cash dividends
Dividend Stocks

TFSA Dividend Stocks: Earn $1,200/Year Tax-Free

Canadian stocks like Fortis are a must-have in your portfolio to earn tax-free yields for decades.

Read more »