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This Stock Is Royal Bank of Canada’s Top Canadian Pick for 2017

Royal Bank of Canada (TSX:RY)(NYSE:RY) recently released a list of top 30 global stock picks for 2017. Alimentation Couche Tard Inc. (TSX:ATD.B) was the top Canadian pick in this list with a 34.4% return expected from current levels.

It’s been a rather quiet year for Alimentation Couche Tard as the stock remained relatively flat, even after a bunch of fantastic acquisitions. There are a large number of tailwinds that will propel the stock higher next year, and I believe investors should load up on shares before the start of the new year.

The stock is extremely undervalued at current levels, and the only reason why the stock price isn’t higher is because of a few incidents that suppressed earnings for the company’s last quarter.

What happened in the last quarter?

Alimentation Couche Tard missed earnings estimates by a single cent thanks to disasters such as a hurricane and a pipeline leak, both of which affected sales at over 500 stores.

What’s really remarkable is the fact that the company basically met analyst expectations for earnings, even with the temporary issues. If the disasters didn’t happen in that quarter, then I’m very confident that Alimentation Couche Tard would have beaten analyst expectations.

So a few disasters happened and hurt numbers a bit. The stock pulled back in response, but does that make any sense considering the issues were temporary?

As a value investor, you have to take a step back and ask yourself what this really means for the long run. The disasters were temporary and mean absolutely nothing in the long run.

Next year, the company will unlock huge synergies from the acquisitions it made this year. Now is the time to buy shares as the stock is lower due to fear from investors over the last quarter.

Huge synergies from acquisitions will cause 2017 earnings to skyrocket

It’s no mystery that 2016 was a very busy year for the company. Alimentation Couche Tard picked up convenience store giant CST Brands in its biggest acquisition to date as well as 278 Esso-branded gas stations and convenience stores in Ontario and Quebec–a market which the company’s managers know well.

The CST Brands acquisition adds over 2,000 locations to Alimentation Couche Tard’s store count and is expected to close in the early part of next year. There’s no doubt that there are a ton of synergies to be unlocked here.

I strongly believe that the underperformance this year will be followed up by a huge rally next year as the company starts showing earnings growth in the next few quarterly reports. It will take some time for all the synergies to be accounted for in an earnings report, but when they are, you can be sure the stock will soar to new highs.

The company is expected to be lifted by a Donald Trump presidency. Alimentation Couche Tard has a very large exposure to the U.S., and Trump’s corporate tax and regulation reduction will be a huge tailwind for the company next year.

There are a lot tailwinds that the company will have next year, and the stock is an absolute steal at a 23.8 price-to-earnings multiple. Buying opportunities like this rarely come along, but when they do, Foolish investors should take action.

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.

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