The shocking reversal in 2023 was that growth stocks surged while bank stocks retreated because of high interest rates. Growth-oriented firms, mainly from the tech sector, were the stars on global stock markets. Canadian and U.S. tech stocks delivered handsome returns with the help of the artificial intelligence hype.
Overall, the resiliency of growth stocks last year was superb, notwithstanding massive headwinds. However, only a few can endure or perform well during recessions or market downturns. If you’re investing in one growth stock for the long term and anticipate a downturn within the investment horizon, Alimentation Couche-Tard (TSX:ATD) is the logical choice.
Profitable and resilient
I reviewed the profitability of the Couche-Tard from fiscal 2020 until fiscal 2023 (12 months ending every April 29). The $78.15 billion operator of convenience stores globally reported profits in each of the four years (US$2.7 billion average), including the COVID year. But did the stock suffer along the way? Yes, it did.
The price dropped to $30.17 on March 23, 2020. However, ATD recovered swiftly, ending the year at $42.50. 2021 passed without much fun fare, although the stock had spikes and dips. Then came the aggressive rate hikes in 2022. The consumer staple stock (+13.22%) outperformed and beat the TSX (-8.66%).
ATD’s return (+32.3%) in 2023 was far better again than the broader market (+8.12%). If you invest today, the share price is $81.11 or 168.8% higher than its COVID-low nearly four years ago. The stock pays a modest 0.73% dividend but is minor because capital protection takes precedence when you own Couche-Tard shares.
The convenience store champion kept growing in the last 10 years through acquisitions, and the stock followed, as evidenced by the 538.40 overall return for the period. Fast forward to the second quarter (Q2) of fiscal 2024, and business has softened due to the decline in same-store sales and lower average fuel selling price.
In the three months ending October 31, 2023, total revenues declined 2.7% to US$16.4 billion, while net earnings increased 1.1% to US$819.2 million versus Q2 fiscal 2023. Still, Couche-Tard’s president and chief executive officer, Brian Hannasch, said the quarterly results were solid.
Continuous global expansion
Couche-Tard maintains the dominant position in the convenience store market in Canada. In the U.S., consolidation is a priority, although the company is working to increase its market share. Management also expects to expand its presence and penetrate European markets.
Earlier this month, Couche-Tard completed the acquisition of certain retail assets of French oil giant TotalEnergies, including those in Germany and the Netherlands. It also secured 60% controlling interests in entities from Belgium and Luxembourg. Besides the ongoing global expansion, Couche-Tard launched the “10 for the Win” strategy in October 2023.
Hannasch said the strategic plan is Couche-Tard’s path to achieve its goals and become the most trusted brand in convenience and mobility. Management will leverage “10 for the Win” to achieve its US$10 billion earnings before interest, taxes, depreciation, and amortization target by 2028.
Defensive holding
Alimentation Couche-Tard is a defensive, if not a low-volatility asset. More importantly, the consumer staple stock can endure market downturns and deliver healthy, long-term returns to risk-averse investors.
