Why a Democrat-Run Senate Is Bad News for This Canadian Stock

This Canadian stock could see some backlash from the recent U.S. election results. Here’s what investors need to know.

analyze data

Image source: Getty Images

I’ve been what I would describe as a perma-bull on Alimentation Couche-Tard (TSX:ATD.B) in the past. That said, as with any great company, it’s important to look at both sides of the trade. In this article, I’m going to discuss why Couche-Tard could see some downside on the near-term horizon.

Political landscape not favourable 

The U.S. senate seat wins in Georgia have changed the game somewhat for Couche-Tard recently. Investors seem to be bearish on this stock in the near-term as a result of this shift in government south of the border. This is mainly due to an increased chance of regulatory changes with respect to EV adoption and clean energy solutions.

A fully democratic administration in the U.S. might stoke questions about what long-term fuel demand might look like in the U.S. These concerns do spill over into Canada as well, given the coordination of OECD countries on global emissions targets.

Couche-Tard is in the business of selling gasoline and other higher-margin goods at convenience stores. About one-third of the company’s profit is derived from the sale of gasoline at the company’s gas stations around the world. While the convenience business has been the main driver of this stock for some time, investors may be getting a bit antsy with this news. Accordingly, I expect some weakness over the near-term to unfold with this stock.

Still a great holding long term

That said, this is still a great long-term buy and hold opportunity.

Couche-Tard is one of the premier consolidators of an industry that remains highly fragmented. Accordingly, my expectation is that we’ll see more acquisitions on the horizon. I see Couche-Tard continuing to expand in Asia and other growth areas of the world. The company recently made a key acquisition in Asia, and this will be a springboard for long-term growth over time.

Additionally, Couche-Tard’s margins are some of the best in class as a result of excellent procurement and pricing strategies in the company’s fuel business as well as its convenience business. This is also due to the company’s size and scale. The acquisitions undertaken by the company set Couche-Tard up for improved pricing power over the long term.

This bolsters the argument that margin expansion could take place. Additionally, this provides defensiveness to investors in terms of cash flow quality long term.

Bottom line

Couche-Tard is a great company to own for long-term investors. The reality that near-term weakness could be on the horizon is something investors should be aware of. At the same time, I think this is a company that deserves a “buy the dip” mentality, and would certainly recommend investors consider picking up shares on weakness if this stock fits their investing goals.

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 Chris MacDonald has no position in any of the stocks mentioned. The Motley Fool recommends ALIMENTATION COUCHE-TARD INC.

More on Dividend Stocks

Two seniors float in a pool.
Dividend Stocks

TFSA: How to Earn $1,890 in Annual Tax-Free Income

Plunk these investments into your TFSA to earn passive income and avoid the taxman.

Read more »

Engineers walk through a facility.
Dividend Stocks

1 TSX Stock I Wouldn’t Touch With a 10-Foot Pole

AtkinsRéalis (TSX:ATRL) is one TSX stock I'd never invest in.

Read more »

edit Woman in skates works on laptop
Dividend Stocks

3 No-Brainer Stocks to Buy Under $30

These three stocks all offer a huge deal for investors looking for dividends, as well as growth that will last.

Read more »

You Should Know This
Dividend Stocks

How to Convert a $300 Monthly Investment Into $338 in Monthly Income

If you want a certain amount in monthly passive income, invest a similar amount today and leave the rest to…

Read more »

Increasing yield
Dividend Stocks

3 Income Stocks With Big Yields to Consider in April 2024

If you haven’t yet made your March investments, here are three income stocks to buy the dip and lock in…

Read more »

Senior Man Sitting On Sofa At Home With Pet Labrador Dog
Dividend Stocks

RRSP Investors: Don’t Miss Out on This Contribution Hack!

This hack has so many benefits for you -- not just when you put it in your RRSP but for…

Read more »

A red umbrella stands higher than a crowd of black umbrellas.
Dividend Stocks

Passive Income: 2 Safe Dividend Stocks to Own for the Next 10 Years

Dividend stocks such as Manulife and Fortis can help you generate a stable and recurring passive-income stream.

Read more »

Young woman sat at laptop by a window
Dividend Stocks

3 Dividend Stocks Everyone Should Own for the Long Haul

For investors looking for top-tier dividend stocks to buy and hold for the long term, here are three of my…

Read more »