Combing the stock market for growth stocks is easy when market conditions are stable. However, under the present circumstances, the selection process is more deliberate. Growth-oriented technology firms ruled in 2020 but have since been in a slump. The sector is the worst performer with its 31.71% year-to-date loss.
Canada’s economy isn’t in a worst state after Q1 2022, although not all industries or sectors have visible growth potentials. If you’re a growth investor, Alimentation Couche-Tard (TSX: ATD) and Cargojet (TSX: CJT) should be on your shopping list. The latest developments from the two companies are compelling reasons to initiate positions this month.
Possible large-scale transaction
The word is out that Alimentation Couche-Tard and British retailing giant EB Group are in exploratory talks for a possible combination. While the Canadian multinational operator of convenience stores has yet to confirm or deny the rumour, analysts see it as a compelling potential transaction.
Irene Nattel, an analyst at RBC Dominion Securities, said the transaction is consistent with Couche-Tard’s five-year plan to double its size. She added that the $60.18 billion company has always been highly disciplined on M&A valuation. If ever the large-scale transaction pushes through, Nattel expects management to apply heightened financial oversight in the current environment.
For Chris Li, an analyst at Desjardins Capital Markets, EG is a good strategic fit for the highly disciplined Couche-Tard. He said, “We believe ATD could realize meaningful synergies by leveraging its increased scale and applying its existing fuel margin improvement initiatives.” However, Li expects the synergies to vary by geography.
Still, with or without the reported transaction, Couche-Tard is among TSX’s top consumer staple stocks. At $58.11 per share, the trailing one-year price return is nearly 40%. Market analysts covering the stock recommend a buy rating. Their high price target in 12 months is $79.19 or a return potential of 37.1%.
Robust demand
Cargojet ($153.59 per share) surprised investors with its latest quarterly results. In Q1 2022, total revenue grew 45.7% to $233.6 million versus Q1 2021. Despite the $56.4 million net loss for the quarter, demand for global air cargo in 2022 remains robust. Notably, the adjusted free cash flow of $42.7 million was 21.3% higher compared to the same period last year.
The $2.68 billion provider of time-sensitive air cargo services achieved stellar revenue growth, despite the volatile macro environment. Cargojet benefits from the major changes happening in the global supply chains. The large-scale dislocation is likewise creating demand for air cargo. Thus, Cargojet is well positioned to capitalize wherever new opportunities arise.
Cargojet president and CEO Dr. Ajay Virmani said, “The recent geopolitical events have further added pressure on the already strained traditional supply chains but they are also creating new opportunities for air-cargo.” The good news is that customers have no plans of scaling down on the e-commerce side anytime soon.
Breakout rallies
Dividend payers Alimentation Couche-Tard and Cargojet are the top picks for growth investors. The consumer staple stock (0.77%) and industrial sector component (0.68%) pay modest dividends, although would-be investors should realize considerable capital gains once their breakout rallies start.
