What do Dollarama (TSX: DOL), Alimentation Couche-Tard (TSX:ATD.B) and BRP Inc. (TSX: DOO) have in common?
They’re all based in Quebec, they’re all very profitable, and their stocks have all delivered for shareholders over the long haul. As I stated in the headline, all three belong in your portfolio.
However, to make things interesting, I’m going to rank the three of them by weight to indicate the order in which I would buy them.
So, if you have $30,000 to invest in the three stocks, I’ll recommend $12,000 (40%) in one, $10,000 (33%) in another, and $8,000 (27%) in the third and final stock.
An $8,000 investment
Although Couche-Tard is based in Quebec, there is no question that it’s a global player in the convenience store business.
In recent years, Couche-Tard stock has lost some of its shine, delivering a three-year annualized total return of 3.8%, significantly worse than the 9.3% annualized total return for the TSX Composite.
The cause of its slowdown? Slower organic sales growth. Couche-Tard is known for its acquisitions, of which it’s done many, but same-store sales growth has been harder to come by.
However, the company’s first-quarter report suggests things are about to change — same-store sales growth was 4.2%, 6.6%, and 7.3% in the U.S., Canada, and Europe, respectively, and that’s got the attention of analysts.
“Couche-Tard is generating increased traffic to its convenience stores, despite relatively flat volumes of fuel pumped in the forecourt,” Desjardins analyst Keith Howlett said recently. “The number of items purchased per transaction within the convenience store and transaction size are both increasing.”
As a result of its strong first-quarter showing, Howlett raised his 12-month target price to $74, up from $70.
I’m still a little skeptical about how much growth Couche-Tard can squeeze out of its business without any real innovation, but it’s doing enough to get the job done, including the Circle K re-branding. Further acquisitions in Asia over the next 12-24 months should enable it to keep its foot on the gas.
A $10,000 investment
Fool contributor Andrew Button recently wondered if Dollarama stock could turn it around, given it’s down year to date and its growth is slowing.
That’s a fair question. The answer lies in Button’s article.
Button mentioned the partnership with Dollar City in South America, suggesting Dollarama could benefit from its supply contracts with the discount retailer. However, what he doesn’t say is that Dollarama has an option to buy majority control beginning in February 2020.
I’ll spare you the suspense: Dollarama will most certainly exercise that option. And it’s not because the Canadian dollar-store footprint is oversaturated; it’s because the potential in Latin America is far greater than Canada could ever hope to have.
Anyone who’s owned Dollarama stock since it went public 2009 knows what this management team is capable of. I don’t have any doubt it will be just as successful in Latin America, keeping growth on the front burner.
A $12,000 investment
I’ve been a fan of BRP for some time. I’d first recommended its stock in June 2016 when it was trading around $20; I’ve continued to recommend it on various occasions over the past two years, most recently this past May when I suggested it’s worth more than $60.
I’d predicted that it could get to $75 by 2021. Well, it’s $5 away from $75, so perhaps it’s best if I up my prediction to $100 by 2021.
The one thing I know is that people love ATVs and SSVs.
“I’ve followed its U.S. competitor, Polaris Industries, since before the 2008 market collapse; its stock is up 1,393% since the March 2009 bottom,” I wrote May 28. “There is money to be made in recreational vehicles, and given that young people are drawn to experiences rather than buying a lot of stuff, that’s never been truer than it is today.”
There’s one fly in the ointment, and that’s a recession, something Fool contributor Victoria Hetherington recently alluded.
“Though a wayward P/B is a cause for alarm, if you want to invest in an industry that is likely to ride roughshod over any economic downturn that the coming year or two may throw our way, outdoor leisure might be a healthy and rewarding way to go,” Hetherington wrote September 1.
Long term, BRP is a winner.
