1 Cheap Canadian Stock to Buy in an Expensive Market

Alimentation Couche-Tard Inc. (TSX:ATD.B) is a wonderful Canadian company whose shares are currently at a wonderful price.

| More on:
edit Sale sign, value, discount

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

Just because the Canadian stock market is a tad on the frothy side doesn’t mean there aren’t buying opportunities out there. There are top Canadian value stocks hidden in plain sight on the TSX Index, and some of them, I believe, are too cheap to ignore.

In this piece, we’ll go into an undervalued but untimely name that I think has one of the widest margins of safety out there. It’s misunderstood by most retail investors and analysts right now, but as management sheds more light on its perplexing strategic pivot, I think the Canadian stock could be capable of big gains over the next 18 months.

A deep-value stock in an expensive market

Without further ado, consider the Canadian convenience retailer that we all know and love: Alimentation Couche-Tard (TSX:ATD.B). The Canadian stock has been treading water of late, thanks in part to a failed acquisition attempt that seemed to have confused the crowd, enticing many to ditch the stock.

The stock fell into a vicious correction in a hurry. It was probably the ugliest reaction to a potential acquisition that I’ve seen in quite a while. Couche-Tard went after French grocery giant Carrefour, and investors wouldn’t have it. The deal fell through almost immediately, yet the Canadian stock remained in the penalty box. While shares have been climbing out of the depths of the “Carrefour correction,” shares remain off over 13% from their 2020 all-time highs.

Buying while others sell

Does Couche-Tard’s intent to get into the grocery business really warrant such a collapse in its share price? Most definitely not. Other than for a few long-term thinkers who’ve been keeping up with the industry and Couche-Tard’s latest initiatives, Couche’s pursuit of Carrefour is a reason to throw in the towel.

There have been major positives that have been going on behind the scenes. Not only has Couche’s cash and credit pile been building amid the pandemic (there’s now enough liquidity for the firm to make its biggest acquisition yet), but the firm has been stealthily dipping its toe into new markets, most notably cannabis retail, while continuing to improve upon comps. In addition, the company is experimenting with a revolutionary new model of convenience store layout that’s fully equipped with technologies that improve upon the convenience factor.

What will the convenience stores of the future look like?

Just check out Couche-Tard’s retail innovation lab at McGill University, and you’ll have an idea of where the convenience store giant could be headed over the next 10, 20, and 30 years. There’s only one jigsaw piece that the company is missing, though. It’s a grocery giant’s supply chain.

Couche-Tard’s Fresh Food Fast program has been profoundly successful. And the company needs to double down on the trend by acquiring a big-league grocer like Metro, Kroger, or Carrefour to future-proof its business. Once the inflation becomes problematic and the grocers, which already have razor-thin margin, feel the squeeze, maybe then Couche-Tard could have an opportunity to pounce.

Like it or not, EVs (electric vehicles) are coming, and convenience retailers will have to do more to beckon customers who can expect to wait over 20 minutes for their vehicles to charge.

Such a lengthy timespan would be perfect for doing a quick grocery mini-haul, sitting down, and having a coffee. If Couche-Tard can pull the trigger on a grocer and integrate its supply chain, the sky will be the limit for the Canadian stock, as it looks to expand its circle of competence to bring forth what could be the best version of Couche-Tard we’ve ever seen.

Foolish takeaway on the top Canadian stock

Couche-Tard is getting big, with a $44.6 billion market cap. But I think its best days are right ahead of it, as it looks to transform itself into the convenience retailer of the future. At 13.7 times earnings, Couche stock is ridiculously cheap, and contrarians would be wise not to sleep on the Canadian stock while it’s down and out.

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 owns shares of and recommends ALIMENTATION COUCHE-TARD INC.

More on Coronavirus

Business success with growing, rising charts and businessman in background
Coronavirus

1 Growth Stock Every Canadian Investor Should Consider Right Now

This growth stock saw shares pop 10% on June 20, as one analyst stated there is a significant opportunity to…

Read more »

Aircraft wing plane
Coronavirus

Bombardier Stock Merge: What it Means for Investors

Bombardier (TSX:BBD.B) stock went through a reverse stock split on June 13, turning 25 shares into one in one swift…

Read more »

Aircraft wing plane
Coronavirus

Air Canada (TSX:AC) Stock: Ready to Take Off?

While Air Canada is handling what it can control really well, there are many worsening macro headwinds that will likely…

Read more »

rail train
Coronavirus

Bull or Bear: Why Analysts Changed Their Tune on Aecon Stock

Analysts had been champing at the bit for the construction company, but the tides have turned.

Read more »

Biotech stocks
Coronavirus

Is Bellus Health Stock Still a Buy After 30% Earnings Jump?

The biotech continues to make progress on obtaining FDA approval for its chronic-cough therapy.

Read more »

grow dividends
Coronavirus

Goodfood Stock Likely to Double in 2022!

Goodfood (TSX:FOOD) stock has had a huge rise and fall in the last few years. But at $1.85 a share,…

Read more »

grow dividends
Coronavirus

Canfor Stock Pops 5% as Sales Climb 15% YOY

Canfor (TSX:CFP) stock remained positive about its future in the global lumber market after profits climb 15% year over year.

Read more »

edit Safety First illustration
Coronavirus

2 Crash-Proof TSX Stocks I’d Buy With $5,000

These two TSX stocks have proven they can handle this economic downturn and likely will continue to be safe far…

Read more »