Momentum investing can get new investors in all sorts of trouble. Investing is not simply buying what only seems to go up or what’s hot among your friends at any given time.
There are fads that come and go so quickly and gains that are lost at the drop of a hat. Instead of participating in such short-lived euphoric surges, I’d much rather you invest in stocks with long-term momentum, modest valuations, and predictable earnings growth prospects.
Momentum is only bad if there aren’t earnings to back things up! In the tech scene, investors like to look too ahead into the future and perhaps neglect conducting a discounted cash flow (DCF) model to appropriately value such a company.
Additionally, whenever there’s hype, it can be tempting to overestimate a firm’s ability to compete in a nascent market that may not be as rich in opportunity. For starting investors who can’t see far into the future, there are profitable companies that have a formula for beating the market.
Such TSX winners are likely to keep on winning, assuming the price you pay isn’t too high. In this piece, we’ll look at two of my favourite winners that I believe are poised to keep winning for years to come.
Dollarama
Dollarama (TSX:DOL) is more than just your run-of-the-mill dollar store. It’s a discount retailer that’s built quite a brand for itself in Canada, a market that’s seemingly less competitive than in the U.S., a market where there’s more than a handful of publicly traded discount retail stocks. Through smart supplier partnerships, Dollarama has been able to pass savings to its consumers, even amid hefty levels of inflation. Indeed, staying on budget is all too easy by shopping over at the local Dollarama.
As inflation bites, while the economy rumbles, Dollarama may still have the means to surge even higher from here. Though consumers can recover in 2024, I don’t expect the bargain-hunting and scarcity mentality to go away anytime soon. As Dollarama continues opening new stores over the coming years, it’s hard not to stand by the firm as it keeps on winning.
The stock has crushed the TSX in impressive fashion over the past two years, soaring over 73% in the timespan, while the TSX Index actually shed about 5%.
Alimentation Couche-Tard
Sticking with the retailing theme, we have Quebec-based convenience store giant Alimentation Couche-Tard (TSX:ATD). The company is best known for its Circle K line of stores (many locations across Canada used to be called Mac’s).
With an impressive balance sheet and a talent for spotting deals in the industry to scoop up, I view Couche-Tard as an earnings growth knight who has an engine that could keep running strong many years into the future.
Indeed, Couche-Tard proves that you don’t need to overcomplicate things to do incredibly well in markets. I remain a big fan of the stock and plan to buy on any corrections going into 2024. At 18.8 times trailing price to earnings, shares still aren’t all too expensive, despite rising over 65% in the past two years!
If I were to bet, I’d bet on ATD stock over the TSX Index for 2024!
