2 Stocks With Surprising Growth Potential

Alimentation Couche-Tard and Restaurant Brands International are stealthy growth stocks that are trading too cheap right now.

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Growth stocks have been down and out for well over a year now, with tech leading the way lower as a result of rapidly climbing interest rates. Indeed, rates may not be cut anytime soon, so those chasing the fast-falling knives in the tech space may wish to take a step back and consider the longer-term picture.

Catching a falling knife is never easy. Still, brave investors who spot a pricing blunder made by Mr. Market should act anyway, even if it entails enduring a bit of pain over the near term. At the end of the day, when others are running scared, investors have a chance to get the best bargains this market has to offer.

Catching falling knives isn’t for everyone. Fortunately, you don’t need to scavenge the wreckage of unprofitable growth stocks.

Consider Alimentation Couche-Tard (TSX:ATD) and Restaurant Brands International (TSX:QSR), two growth stocks that are surprisingly growthy with strong recent share price momentum and relative value.

Alimentation Couche-Tard

Couche-Tard is a global convenience store company with a stock that’s been in a bull market amid the S&P 500’s bear market. As recession works its way into the financial results of many firms, I view Couche as one of the firms that can keep smashing estimates. Why? The company’s growth profile is surprisingly resilient. And I expect it to remain this way as the firm makes good use of its sound balance sheet to scoop up great deals in the wreckage.

The firm recently bought a large number (around 2,000 or so) of European-based fuel stations from TotalEnergies in a deal worth US$3.3 billion, or just shy of $4.5 billion. This marks one of the biggest M&A splashes made by Couche in years. I think the deal is quite cheap, given the headwinds facing many convenience retailers. Further, a lot of energy giants have been looking to sell their convenience store assets of late. Whenever there are lots of potential sellers, buyers with liquidity (like Couche) have the leverage. With such leverage and strong negotiators comes the opportunity to get great deals.

I like the M&A environment and think Couche-Tard is well-equipped to continue growing profits through acquisition over the next five years. Indeed, Couche can find the perfect mix of organic and inorganic growth over the next five years and beyond.

Even at a fresh new all-time high of around $66 per share, I still view Couche as a cheap growth star while it’s going for 16.8 times trailing price-to-earnings. For a firm capable of double-digit percentage growth, such a multiple seems absurdly low.

Restaurant Brands International

Restaraunt Brands is a fast-food chain behind Burger King, Tim Hortons, Popeye’s Louisiana Kitchen, and Firehouse Subs. The firm has strong brands that are capable of explosive growth at the international level. However, management hasn’t been able to get everything going at the same time. We’ve seen strength at Burger King be weighed down by weakness in Tim Hortons in many quarters. Strength in Popeye’s has also been notable, but less of a needle-mover.

Looking ahead, I think Restaurant Brands could find a groove. The company made management changes and has embraced technology. For years, the fast-food purveyor has been a cost-cutting, margin-driving story. Now, I view it as more of a growth play as the firm continues to embrace tech and gain an edge on rivals in the fast-food space.

Finally, there’s the juicy 3.5% dividend yield for investors to collect while they wait for management to get all four brands firing on all cylinders.

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 has positions in Alimentation Couche-Tard and Restaurant Brands International. The Motley Fool has positions in and recommends Alimentation Couche-Tard. The Motley Fool recommends Restaurant Brands International. The Motley Fool has a disclosure policy.

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