Retail stocks have developed a knack in recent years as being risky, if not cursed investments. Thinking back to a decade or more ago, retailers operated in impenetrable fortresses of brick and mortar, where the success of the business was defined by both how large your showrooms were and how many locations you had. Then the internet came along and burst that bubble. Retail is no longer what it used to be; consumers shop around for the best deals on their mobile devices, and an increasing number of us are completing those transactions online, too. So, how can investors diversify into…
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Retail stocks have developed a knack in recent years as being risky, if not cursed investments. Thinking back to a decade or more ago, retailers operated in impenetrable fortresses of brick and mortar, where the success of the business was defined by both how large your showrooms were and how many locations you had.
Then the internet came along and burst that bubble.
Retail is no longer what it used to be; consumers shop around for the best deals on their mobile devices, and an increasing number of us are completing those transactions online, too. So, how can investors diversify into the retail sector without getting burned by the mobile commerce onslaught?
Pick an area of retail that has either adopted technology into its buying process or one that is still immune to it.
Until such time that we have widespread adoption of autonomous vehicles that are powered by electricity, there’s still a growing need for the gas station/convenience store model offered by Alimentation Couche Tard (TSX:ATD.B).
Couche Tard is everywhere
One of the many things that continue to impress me about Couche Tard is how the company has seemingly expanded to become one of the largest convenience store operators in the world all within the past few decades. The company opened its first store in 1980 and today it has nearly 10,000 locations in over a dozen countries.
That incredible expansion can be attributed down to a very aggressive and lucrative approach to expanding through acquisition.
The convenience store and gas station retail model is very unique and, for the most part, consists of smaller regional players. This, in turn, provides a unique opportunity for a company with deep pockets to quickly establish a network of locations, many of which are in new markets not previously served.
A prime example of this was the CST Brands acquisition by Couche Tard in 2017, which added nearly 1,300 locations to Couche Tard’s network, and many of which were in under-served areas where the company had a minimal presence, such as Texas.
Expanding rapidly is only one part of the puzzle; the other has to do with integrating those new locations into your network and realizing cost synergies. This is an area where Couche Tard continues to impress, as in the case of the CST deal Couche Tard has estimated cost synergies of $150-200 million to be realized within the first three years following the acquisition. To date, Couche Tard has nearly met that mark.
Future growth could be even more lucrative
While Couche Tard hasn’t been coy about continuing to flex its muscle and continue expanding, the question of where the company will expand does pose some opportunity for investors.
The North American model for a gas station and convenience store is simple; it’s not so much a destination that customers come to but rather an interim stop for people on their way somewhere else. Turning to the developing markets in Asia, that model appears to be flipped, with many convenience stores becoming meeting spots where seating, a greater array of refreshments and even warm foods are offered.
It’s an interesting proposition that could prove lucrative if Couche Tard were to act on it, and Couche Tard has in the past mentioned the Thai, Indian, and Chinese markets as potential expansion routes to consider in future.
While Couche Tard does have a small presence in Asia already, those stores are through licensing agreements and not actually owned by the company.
In my opinion, Couche Tard remains an excellent long-term growth stock that should be core to any well-diversified portfolio.
Iain Butler has stumbled upon a little-owned stock he believes could be one of the greatest discoveries of his almost 20 years as a professional investor.
This is your chance to get in early on of what could prove to be a very special investment recommendation. Think about how many investing trends you've missed out on, even though you knew they were going to be big. Don't let that happen again.
Fool contributor Demetris Afxentiou has no position in any of the stocks mentioned. Couche Tard is a recommendation of Stock Advisor Canada.