1 Canadian Stock I’d Buy by Year-End

Alimentation Couche-Tard (TSX:ATD.B) is just one of many Canadian stocks that investors should consider nibbling at going into year-end.

stock data

Image source: Getty Images

Canadian stocks are in a bit of an odd spot heading into year-end, with commodity prices beginning to cool down and the central bank ready to hike rates for the first time in a long time. While higher rates don’t bode well for capital-intensive companies, it’s worth noting that many of the top Canadian stocks are more likely to follow in the footsteps of the American markets and the moves of the U.S. Federal Reserve.

Undoubtedly, the U.S. market heavily influences the global markets such that a nation’s own policies may be less of a needle mover. Indeed, many TSX-traded companies are heavily exposed to the states, some of which conduct a majority of their business in the U.S. or international markets.

While rate hikes in Canada are a hot topic of discussion, all eyes will still be on the U.S. Fed, which the Bank of Canada will likely not want to deviate too far from a monetary policy standpoint.

In this piece, we’ll have a look at one Canadian stock with heavy U.S. exposure that should be able to do well over the next decade, even if rate hikes come at a faster rate.

Undervalued, underrated and ready to grow

Consider Alimentation Couche-Tard (TSX:ATD.B), a global convenience store giant with a considerable amount of exposure to the U.S. market. The company, which had grown primarily via strategic M&A and divestments, is navigating through a confusing period. Technological disruption is in the air, and the company needs to pivot to make the most of the situation. Undoubtedly, the rise of electric vehicles (EVs) is the number one trend that Couche-Tard’s managers have been paying close attention to in recent years.

Couche-Tard’s fuel sales are poised to fade gradually over the years, as more EVs replace traditionally gas-powered vehicles. It’s perceived as a major negative for the c-store giant, which derives a big chunk of revenues via fuel sales. But investors should view the transition as an opportunity. If Couche-Tard plays its cards right, the transition to charging stations could bring forth profound earnings growth. Fuel margins pale in comparison to merchandise sales.

Over time, charging stations will gradually replace fuel stations. With that, consumers will have more time to kill as they wait for their EVs to power up. Indeed, a grocery store acquisition makes a ton of sense, even if investors don’t like it. Couche-Tard’s purchase of a grocery store supply chain could turn the company into more of a disruptor.

Although the pursuit of French grocery chain Carrefour was shot down nearly immediately by France’s government, I do think that management is on the right track, as it explores deals slightly outside of its circle of competence.

Couche-Tard: Many verticals to change for the better

There are many verticals that Couche-Tard could expand to, most notably grocery, cannabis, and quick-serve restaurants. The company already has a nice stake in Fire & Flower Holdings, giving Couche some cannabis experience that could really pay off should the U.S. be next in line to bring forth nationwide legalization. Moreover, Couche-Tard’s fresh food offering has hit the spot with consumers. If it can double-down on the area with a North American grocery chain, there are many reasons to be bullish on c-stores of the future.

Finally, partnering with a quick-serve restaurant located within a c-store seems like another natural move for Couche-Tard. Recently, Starbucks and Amazon joined forces to launch their Starbucks-equipped Amazon Go store (or is at an Amazon Go-equipped Starbucks?). Perhaps Couche-Tard could partner with Tim Hortons, and its partnership could pay massive dividends, as the c-store as we all know it changes for the better.

Forget fuel sales. Couche-Tard has a chance to beef up its merchandise sales, as it beckons in consumers with charging stations and a more comprehensive range of other offerings. At the end of the day, convenience is king, and Couche is arguably royalty when it comes to the space.

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 Investing

funds, money, nest egg

Retirees: 3 Canadian Stocks You Can Confidently Own for the Next 20 Years

Here's why retirees need to plan beyond 20 years in retirement. Fortis Inc. (TSX:FTS), Royal Bank of Canada (TSX:RY) stock…

Read more »

Question marks in a pile
Tech Stocks

Should You Invest in Absolute Software Stock Right Now?

Absolute Software (TSX:ABST) is a tech stock that is worth your attention, as it offers exposure to exciting security markets.

Read more »

Dividend Stocks

1 Oversold Dividend Stock I’d Buy in December 2022

Here’s one of the best Canadian dividend stocks to buy in December that I find undervalued.

Read more »


FOR TUESDAY – 3 TSX Stocks to Buy Today and Hold for the Next 3 Years

Given their growth prospects, these three TSX stocks could outperform over the next three years.

Read more »

Supermarket aisle with empty green shopping cart
Stocks for Beginners

Is Dollarama Stock a Buy at All-Time Highs?

Dollarama stock (TSX:DOL) remains at all-time highs while the rest of the market drops. Does this mean it's due to…

Read more »

Online shopping
Tech Stocks

Should You Buy Shopify Stock If the Rate Hike Cycle Slows?

Is SHOP stock a buy after its 72% drop this year?

Read more »

A bull outlined against a field

2 Canadian Stocks Set to Soar in a New Bull Market

Consider Sleep Country Canada Holdings (TSX:ZZZ) stock and another mid-cap bargain, as the bear market moves on.

Read more »

Gold bars
Metals and Mining Stocks

Better Buy: Newmont or Barrick Gold Stock?

If you think better days are ahead for gold miners, consider exploring gold stocks Newmont and Barrick Gold.

Read more »