TFSA Investors: A Top Stock I’m Buying More of in 2020

Alimentation Couche-Tard Inc. (TSX:ATD.B) is a wonderful business at a wonderful valuation. Why it’s time to back up the truck!

| More on:
Hand arranging wood block stacking as step stair with arrow up.

Image source: Getty Images

You’re reading a free article with opinions that may differ from The Motley Fool’s premium investing services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn more

Alimentation Couche-Tard (TSX:ATD.B) is a misunderstood stock that still isn’t getting the respect it deserves. The exceptional management team, led by Brian Hannasch, has the magic formula to drive earnings growth through the roof through acquisitions that are rich with synergies.

Despite the massive size of the company, the firm is still capable of posting double-digit growth numbers and hitting management’s target of doubling profits in five years — a tough feat for most other firms with market caps around $50 billion.

The convenience store kingpin had the urge to merge, but of late, the company has been rather quiet with regards to deals made, other than the recent sweetening of the pot to better its chances of scooping up Caltex Australia — a deal that would be a fine foundation in a new market for Couche-Tard.

While Couche-Tard has sweetened up the pot, don’t expect it to risk overpaying for any acquisition. The business of M&A comes with integration risks. While Couche-Tard has done a superb job of mitigating such risks, the company wants to ensure that a deal is well worth the effort and paying more will eat into the potential synergies.

Like in the case with the attempt to acquire Casey’s General Store many years ago, Couche-Tard may end up walking away from the deal altogether if it can’t land a price that creates substantial value for long-term shareholders. Even if Couche-Tard walks away from Caltex Australia, I still think there are better opportunities in the global c-store market.

Heck, it may be better for the stock over the intermediate term if Couche-Tard were to pursue many small-scale acquisitions, rather than looking to land its biggest acquisition to date. Couche-Tard’s scoop-up of CST Brands took a long time to digest, and the stock fell into a long-term consolidation channel, as the company integrated the big-league acquisition while doing a bit of “spring cleaning” its other c-stores.

Looking ahead, Couche-Tard will be striving to bolster its comps at its existing stores while going on the hunt for more M&A opportunities. Couche-Tard has a lot of dry powder, and the announcement of a big deal could send shares spiking overnight. The company is well on its way to doubling its net income by 2024, and I think the stock ought to sport a mid-20s P/E multiple given the low-risk growth to be had.

Today, Couche-Tard trades at just 18.5 times trailing earnings and 0.6 times sales, both of which are too cheap given the catalysts and the firm’s exceptional management. So, if you’re looking for something to buy with your next $6,000 in TFSA funds, look no further than Couche-Tard — a stock I plan to buy more of with my next TFSA contribution!

Stay hungry. Stay Foolish.

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 owns shares of ALIMENTATION COUCHE-TARD INC. The Motley Fool recommends ALIMENTATION COUCHE-TARD INC.

More on Stocks for Beginners

Bank sign on traditional europe building facade
Bank Stocks

Should You Buy Canadian Bank Stocks After the Recent Correction?

Dividends and fairly valued Canadian bank stocks look attractive. But the macro picture could be a spoiler!

Read more »

consider the options
Stocks for Beginners

TSX Investors: These International Stocks Look Insanely Cheap

Diversification can help grow and protect your TSX stock investment portfolio. Here are two international stocks that are selling at…

Read more »

Young adult woman walking up the stairs with sun sport background
Stocks for Beginners

New Investor? Start a Portfolio With These 3 Stocks

Are you a new investor looking for a start in the stock market? Here are three stocks you should buy…

Read more »

financial freedom sign
Stocks for Beginners

5 Investing Hacks to Build a Million-Dollar Portfolio  

Its not difficult to build a million-dollar portfolio. Here are five simple investing hacks that take less than 10 minutes…

Read more »

Volatile market, stock volatility
Stocks for Beginners

3 Top TSX Stocks to Buy in Volatile Markets

Sitting on cash? Consider these three TSX stocks for the long term.

Read more »

potted green plant grows up in arrow shape
Stocks for Beginners

1 Canadian Growth Stock That Could Double Your Money in an Economic Recovery

The market downturn is an opportunity to lock growth during the economic recovery. This stock is a blend of value,…

Read more »

edit Safe pig, protect money
Stocks for Beginners

2 Safe TSX Stocks for Beginners to Buy in a Market Correction

These two TSX stocks are still solid long-term buys today, despite the recent market correction.

Read more »

Human Hand Placing A Coin On Increasing Coin Stacks In Front Of House
Stocks for Beginners

3 Real Estate Stocks to Buy for Terrified Investors

Motley Fool investors shouldn't be afraid of investing in real estate if they have a long-term growth strategy, but these…

Read more »