Growth stocks had a chance to really shine in the first few months of 2023. Led higher by technology stocks, the broader markets had a chance to settle after one of the toughest and longest-lasting bear markets for the S&P 500 in many years. Undoubtedly, it’s still too early to tell if a new American bull market has arrived.
Regardless, investors should stick with what they know and only pay a multiple that implies some margin of safety. As we head into the second half of 2023, a recession could strike and the high-multiple stocks led higher by hype could be the ones that fall the fastest. Indeed, AI has been the hottest tech trend in recent months, with shares of some firms soaring to extremely lofty levels.
The good news is you don’t have to place a bet if a stock has soared to heights you’re not comfortable getting in at. Sure, AI could unlock a world of growth, but that doesn’t mean you need to pay up an arm and a leg for exposure. In this piece, we’ll give more attention to some of the value names that appear to have some margin of safety and upside, even if the 2023 recession proves a bit rockier than expected.
Without further ado, consider Alimentation Couche-Tard (TSX:ATD) and Restaurant Brands International (TSX:QSR).
Alimentation Couche-Tard: Strong long-term momentum
Couche-Tard is a convenience store firm that’s grown via the perfect combo of organic and inorganic (via M&A) growth over the years. Thanks to a high-calibre management team who knows how to allocate capital effectively, shares of Couche-Tard have had little issue topping the broader TSX Index.
The stock has surged around 138% over the past five years, not even including dividends (yield currently around 0.86%). The long-term track record is impressive. And though the firm sports a larger $64.8 billion market cap, there are few reasons to believe the growth will slow.
Going into a recession, I expect Couche could be in a better spot to outperform the rest of the market. At around 17.3 times trailing price-to-earnings, Couche-Tard seems to be a “growthy” stock trading more like a value play. Big deal or not, I think more of the same is in the cards for the retail giant.
Restaurant Brands International: A breakout may be imminent
Restaurant Brands stock has finally woken up in a big way over the past year, with shares blasting off 52% over the timespan. Indeed, the rise of QSR stock has been a long time coming. For years, shares have lagged behind the broader fast-food industry. As the company looks to optimize its brands (Burger King has really shined brightly lately), I see a pathway to $115 per share. Even with a tough recession up ahead, I don’t think there’s stopping the momentum in QSR stock.
At the end of the day, fast food is where investors will want to be when they think affordability will worsen in the face of an economic contraction. I’m a big fan of the trio of brands (Burger King, Tim Hortons, and Popeye’s), and think they’ll drive earnings growth for years to come. The 3% dividend yield is a nice bonus.
