Stock market corrections can happen when many investors least expect it. Indeed, sometimes it’s the punches that we don’t see coming that can hurt the most.
After one of the hottest months (November) in a long time, it’s only prudent to take a step back and consider the longer-term picture rather than chasing the hot stocks others around you may be scooping up hand over fist. Indeed, the AI trade still seems alive and well, with a narrow group of tech plays continuing to surge higher on the back of hype and solid quarterly reports (and forecasts).
In many ways, AI and the rise of various AI chip (and software) stocks seem like the making of some kind of bubble. Whenever you have a stock doubling (or more) over a year, you, as a value investor, have the right to be skeptical.
Of course, nobody wants to be left out of one of the hottest technological breakthroughs in decades. However, investors ought to be careful how and where they bet, as it’s really hard to determine which firms have the most to risk at the hands of next-generation AIs.
One thing is certain, though: AI has the potential to destroy moats and create new market opportunities that early movers could seize. For now, I think there’s quite a bit of valuation risk if you’re looking to get into the hot AI chip stock of the day. Instead, I’d much rather look to areas of the market that can offer growth at a reasonable price (GARP).
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Beyond AI stocks: Where I’d look for value and growth
In this piece, we’ll consider one intriguing low-tech stock that I’ll look to pick up if high-tech plays drag markets into some sort of correction over the coming months.
Of course, corrections are hard to time by nature. But to take advantage of them when they come along, you’ll need a good amount of dry powder ready to go.
Alimentation Couche-Tard
Alimentation Couche-Tard (TSX:ATD) is a hot TSX performer that’s up over 127% in the past five years and 480% in the last 10 years. Indeed, not the type of results you’d come to expect from a $73.8 billion retailer. Growth by M&A seems to be the name of the game. And as the firm embarks on the next leg of its growth story, I do think a big acquisition could help unlock new value and propel shares to even higher highs.
Indeed, it’s never a good idea to chase performance with a stock that’s on a hot streak. However, Couche-Tard stands out as one of the earnings growers that can keep spoiling its shareholders as management looks to make optimal moves. I view Couche-Tard’s managers as profoundly value-oriented. If the firm makes a move, odds are, it’ll be value-creative, not value-destructive, as is the case with some firms that aren’t as disciplined when it comes to deal-making.
With a steady means to grow market share and a management team that’s one of the best in the industry, I view the stock as a bargain buy whenever shares go for under 20 times trailing price-to-earnings. Today, the stock trades at 18 times trailing price-to-earnings after briefly flirting with new highs of $78 and change.
I’m not against buying shares here, but if a vicious correction hits unexpectedly, I’ll be ready to pounce.
