I’m a value investor at heart and a firm follower of Warren Buffett, who worries all the time about overpaying for a stock. Call it overpayment risk if you like — the bane for all value-conscious investors. Even the Oracle of Omaha himself has been caught offside when it came to paying inflated market rates for a stock whose intrinsic value was much below the price Mr. Market served up at his time of purchase.
While overpayment risk is real, one must not unfairly shun firms that have recently hit arbitrary milestones, such as the 52-week (or all-time) high. Sure, a handful of high flyers can be expensive, but so too can stocks that are stuck in limbo at or around their 52-week lows, so it’s important not to judge a company before rolling your sleeves and doing the analysis.
In many instances, there are cases where stocks roaring past all-time highs are undervalued and are capable of sustaining rallies for many months or years at a time without a large risk of correction. It’s these winners that you unfairly shun when you shun the broader basket of stocks trading at or near their 52-week highs. And if you are a value investor, you may be less hesitant to pick up a stock at 52-week lows due to the perceived value, which may not actually be there in reality given the apparent reset to expectations. This bias towards stocks near 52-week lows that value investors have needs to be put to rest.
Warren Buffett is the epitome of a long-term value investor, yet he had no strong objection to Berkshire Hathaway’s purchase of Amazon.com, which the public didn’t deem as a value investment, despite Buffett’s retort that it was. Indeed, there are lessons to be learned from Berkshire’s latest investment. “All investing is value investing,” as Buffett put it.
Simply put, don’t differentiate stocks as “growth” or “value,” as they’re not exactly mutually exclusive, according to Buffett. Doing so would have caused you to miss the boat on stocks like Alimentation Couche-Tard (TSX:ATD.B), the best example of a cheap (or undervalued based on the magnitude of quality growth you’d receive) stock that’s been consistently making new all-time highs all year. I’ve been pounding the table ad nauseam the entire time, touting it as one of my three top Foolish picks for 2019, and 30% later, I still think the stock is cheap at just under 20 times next year’s expected earnings.
Couche-Tard is a very high-quality earnings grower with a higher degree of predictability (as a defensive low-tech consumer staple) relative to most other volatile and erratic growth companies that are full of uncertainty yet receive multiples that are magnitudes higher than that of Couche-Tard.
Why pay up for something harder to understand with a less-certain growth profile? I just don’t get it. When it comes to combining the universes of growth and value investing, Couche-Tard is a stock that’s easy to love.
Sure, its stock has momentum, but you shouldn’t be afraid of it, even as a value investor, because it’s all about what you’ll pay for what you’ll get over the long term and less about arbitrary indicators like the 52-week high. When it comes to Couche-Tard, you’re getting a very long growth runway and more downside protection versus most other double-digit growers out there.
Don’t shun the 52-week high. You’ll limit your pool of potential winners significantly by doing so. There are no shortcuts in investing, so do the homework and don’t discriminate between “growth” and “value,” because even growth investing can be value investing.
Stay hungry. Stay Foolish.
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This is the company we think you should strongly consider having in your portfolio if you want to position yourself wisely for the coming marijuana boom.
John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Fool contributor Joey Frenette owns shares of ALIMENTATION COUCHE-TARD INC and Berkshire Hathaway (B shares). David Gardner owns shares of Amazon. The Motley Fool owns shares of Amazon and Berkshire Hathaway (B shares). Couche-Tard is a recommendation of Stock Advisor Canada.