Sure, the Canadian stock market is near all-time highs, and pundits have been crying for a correction for months now, but that doesn’t meet; you shouldn’t swing at the cheap Canadian stocks that fall on your radar. If you spot a bargain on the TSX Index, you swing; it’s as simple as that. Otherwise, you could find yourself waiting months for a pullback that probably would never have caught the bottom in anyhow.
Timing the stock market is a fool’s (that’s a lower-case “f,” folks!) game and beginners should instead focus on discovering and buying undervalued Canadian stocks, rather than timing the broader markets with the intent of avoiding pain that you’ll inevitably feel as an investor.
If you’ve got an extra $1,000 to invest, consider the following name, which I view as an undervalued gem of a stock in a somewhat frothy market.
Value hiding in plain sight on the TSX Index
I don’t remember the last time that shares of Alimentation Couche-Tard (TSX:ATD.B) were this out of favour. The convenience retailer has done a stellar job of navigating through the worst of the COVID-induced lockdowns. Despite persevering through the headwinds, investors seem to think that Couche’s best growth days are in the rear-view mirror.
The convenience store giant used to be very busy on the acquisition front, scooping up small, lesser-known c-stores at reasonable prices and driving synergies. The firm has a track record of creating value out of every move it makes. That’s a huge reason why acquisition announcements served as rally fuel for the stock back in Couche’s glory days of the mid-2010s.
Acquire, drive synergies, repeat.
These days, Couche hasn’t been nearly as active on the M&A front. It’s been busy driving comps at its existing locations, and it’s done a pretty good job. All the while, Couche’s cash and credit pile has been piling up. With more than enough liquidity to make a massive splash or series of smaller splashes, investors have been eagerly waiting for the firm’s next big move.
When Couche shocked the world with its pursuit of big-league grocer Carrefour, though Couche stock collapsed.
Couche-Tard and its grocery pivot is not as perplexing as most make it!
To some, Couche was wandering outside its circle of competence. Adding a behemoth-sized grocer would probably take a toll on margins and bring forth considerable integration risks versus the likes of a c-store acquisition. The business of grocery retail is far different from convenience retail, after all.
Looking way into the future, it becomes more apparent that the successful convenience retailers of the future will need access to an established grocery supply chain. Amazon.com made a splash with Whole Foods. Now it’s going after the convenience retail market with its Amazon Fresh Go stores, which draw a striking resemblance to Couche’s retail innovation lab at McGill University.
Amazon is starting with a large-scale grocer and it’s working its way down the c-stores. Couche is looking to do the opposite and I think both strategies will prove to be profoundly successful over the next decade.
Grocery supply chains, a lack of a checkout counter, and incredible technologies everywhere. That’s the c-store of the future, and Couche isn’t wasting time with its evolution, even if it’s to the discontent of shareholders.
Foolish takeaway for value investors seeking cheap Canadian stocks
At less than 0.8 times sales, Couche is a bargain that I believe could soar in the face of any market volatility. The great economic reopening is underway, and Couche’s fuel business is poised to have a huge weight lifted from its shoulders. As such, investors would be wise to scale into a position today before the herd better understands the direction that Couche is headed.
If you consider yourself a long-term investor, don’t sleep on this night owl!
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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.
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 Amazon. David Gardner owns shares of Amazon. The Motley Fool owns shares of and recommends ALIMENTATION COUCHE-TARD INC and Amazon and recommends the following options: long January 2022 $1920 calls on Amazon and short January 2022 $1940 calls on Amazon.