If you’re a believer of the January effect, a hypothesis that stock market performance in January predicts what’s in store for the rest of the year, then you’re probably a raging bull right about now, just as the stock market wrapped up its best January in 30 years.
While many potential catalysts could allow markets to roar higher throughout the year, I’d encourage investors to shoot for high-quality stocks with attractive multiples, rather than flocking back into overly cyclical growth plays to get that maximum upside in an up market. Because as we saw last year, a market melt-up could very suddenly turn into a market melt-down like a wolf in a sheep’s clothing. And if your stock selection was conditional on an up market, you’ll probably grow weak-handed with your holdings should things reverse as they always do.
Here are two stocks whose companies have plenty of catalysts over the medium term that could propel each stock higher, regardless of what happens to the broader markets:
Alimentation Couche-Tarde (TSX:ATD.B)
Couche-Tard, the convenience store kingpin, is just about finished with its “spring cleaning” after many years of global industry consolidation.
Management still has the magic touch when it comes to realizing synergies through M&A. And although the pace of acquisitions has slowed down considerably of late, investors ought to respect the fact that management had enough discipline to take a step back to improve upon its operational efficiencies at existing stores rather than going all out on the ample M&A opportunities out there.
As you may remember, acquisition announcements are rocket fuel for the stock in the short-term because of the impeccable synergy-driving abilities of management and their focus on paying a dime to get a dollar. Couche-Tard could have raised more debt for deals to prop its stock up consistently, but it didn’t. Management did the responsible thing, and with debt levels moving lower, the company could be ready to make a major splash into the high-ROE c-store markets in Southeast Asia.
Once that happens, I suspect M&A announcements will propel the stock much higher, as Couche-Tard continues to post impressive EPS numbers at its existing chains. As a low beta TSX play with many medium-term catalysts, I suspect Couche-Tard stock will continue to trend higher, and it won’t matter what mood Mr. Market will be in!
The pipelines are boring, they’re out of favour, and the situation ahead seems dire. At least, that’s the word on the Street.
For contrarian income investors, however, Enbridge has a huge, growing dividend, a ridiculously cheap valuation, and potential catalysts that could provide the stock with some relief. The much-anticipated Line 3 Replacement is underway, and it’s supposed to help the financially unhealthy firm regain its financial footing, potentially allowing the company to renew its double-digit percentage annual dividend growth streak through to the early-to-mid 2020s.
If dividends are your forté, Enbridge is a must-own, and if the catalysts don’t cause Enbridge stock to bounce back in 2019, you’ll at least walk away with a generous dividend payment (6.1% yield) as you wait for the company to return to its former glory.
I do believe that Enbridge will get through the hurdles that are up ahead, and those who stand by the stock will be the ones that’ll achieve excess risk-adjusted returns.
Stay hungry. Stay Foolish.
