Turn $6,000 Into $10,000 in 2 Years With My Top Value Pick for December

Alimentation Couche-Tard Inc. (TSX:ATD.B) is a TFSA top pick that young investors should scoop up amid Mr. Market’s pricing blunder.

Value for money

Image source: Getty Images

Young TFSA investors should always seek to take calculated risks when it makes sense. That doesn’t mean speculating on the price of Bitcoin or a pie-in-the-sky growth stock, though. Doing so drastically increases the odds that you could lose your shirt should you end up being the one that holds the bag in a game of greater fools (that’s based on the greater fool theory, not us here at The Motley Fool!).

Instead of seeking out the “sexy” play at any given time, I’d encourage investors to look to the areas of the market that most other investors have given up on, as that’s where the deepest value may be at any given instance. At the same time, you don’t want to reach out to catch a falling knife in an industry that’s in secular decline, such as the fossil fuel industry. Warren Buffett’s old cigar-butt approach to picking stocks doesn’t result in optimal results over the long run.

Take a page out of Warren Buffett’s playbook

If you want to beat the markets while tilting the risk/reward trade-off in your favour, you should seek wonderful businesses with solid long-term track records that have been temporarily thrown in the bargain bin. As the great Warren Buffett once said, it’s better to buy a wonderful business at a fair price than it is to buy a fair business at a wonderful price.

This piece will have a look at top Canadian stock in the latter camp. The name is currently out of favour today, despite still having stellar long-term fundamentals that are as strong as ever. While investors draw too much focus on broader market trends such as the recent vaccine-driven rotation out of defensives, stock pickers like you have a chance to scoop up the name at what I believe to be a considerable discount to its intrinsic value.

A wonderful business at a wonderful price

Without further ado, consider Alimentation Couche-Tard (TSX:ATD.B), a bruised but robust stock that can help improve your odds of turning your $6,000 TFSA contribution into $15,000 within the next three years or less, as we inch closer to a post-COVID world.

Couche-Tard is a rare breed, indeed. It’s a defensive growth stock that’s both recession and pandemic resilient. With a handful of remarkably effective vaccines on the cusp of rolling out, investors have turned their attention to the COVID recovery plays while ditching the defensives, including the likes of the top-performer Couche-Tard.

The defensives just aren’t sexy as they used to be amid the latest increase in the risk appetite. As you may know, a bear market is never too far away. Oftentimes, the bear rears its ugly head when investors least expect it, driving up the price of admission to such defensive growth names as Couche-Tard. If you’re lacking in defensive growth positions or want a stock that’s priced at a severe discount to its intrinsic value, I’d buy Couche following its mixed post-earnings reaction.

Alimentation Couche-Tard: Earnings fly above expectations, but the rotation out of defensives halted its rally

The company clocked in a stellar quarter, handsomely beating the Street on the bottom line. Despite this, the stock pulled back modestly post-earnings, because investors seem overly focused on the broader market rotation that’s opened up compelling bargains within the unloved defensives.

At 13.3 times trailing earnings, Couche looks like a steal. The latest quarter, I believe, came for free. As we head into December, Couche-Tard stock is my top pick before the risk rotation has a chance to exhaust itself.

Foolish takeaway

If you seek to turn your $6,000 TFSA contribution into $10,000 in two years, you’ll need to average an annual return just shy of 35%. Couche is well on its way to doubling its profitability in five years, and its stock still suggests that investors think it’s a far-fetched target that will not be reached. I’d say the target will be hit, and the stock could be in for a combination of blowout quarters and multiple expansion en route to $70.

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

Plane on runway, aircraft
Stocks for Beginners

Up 53% From its 52-Week Low, Is Cargojet Stock Still a Buy?

Cargojet (TSX:CJT) stock is up a whopping 53%, nearing closer to 52-week highs from 52-week lows, so what's next for…

Read more »

Businessman holding tablet and showing a growing virtual hologram of statistics, graph and chart with arrow up on dark background. Stock market. Business growth, planning and strategy concept
Dividend Stocks

TFSA Magic: Earn Enormous Passive Income That the CRA Can’t Touch

If you're seeking out passive income, with zero taxes involved, then get on board with a TFSA and this portfolio…

Read more »

Man with no money. Businessman holding empty wallet
Dividend Stocks

2 Stocks Under $50 New Investors Can Confidently Buy

There are some great stocks under $50 that every investor needs to know about. Here’s a look at two great…

Read more »

potted green plant grows up in arrow shape
Stocks for Beginners

3 Growth Stocks I’m Buying in April

These three growth stocks are up in the last year, and that is likely to continue on as we keep…

Read more »

Growth from coins
Dividend Stocks

1 Grade A Dividend Stock Down 11% to Buy and Hold Forever 

If you're looking for the right dividend stock at the right price, you're going to want to consider this insurance…

Read more »

IMAGE OF A NOTEBOOK WITH TFSA WRITTEN ON IT
Stocks for Beginners

3 TFSA Hacks That Could Make You a Millionaire

Do you want a $1 million without worrying about the tax bill? These TFSA hacks could help you become a…

Read more »

Early retirement handwritten in a note
Stocks for Beginners

These 2 TSX Growth Stocks Could Help You Retire Early

Buying these two TSX growth stocks can help you retire early by multiplying hard-earned savings in the long run.

Read more »

Technology
Stocks for Beginners

The Best Stocks to Invest $1,000 in Right Now

Want a great starter portfolio? Here’s a list of the best stocks to invest $1,000 in right now for long-term…

Read more »