The TSX Index doesn’t have to be hard to beat as long as you’re not chasing the hottest plays on the stock market. These days, the tech sector is showing quite a bit of froth as AI chip plays continue drawing in massive crowds.
Undoubtedly, the top AI chip plays only seem to keep climbing higher. And though they are continuing to cash in from the rise of a powerful trend, investors must realize that eventually, the punch bowl will be taken away, and losses could come in fast and furious.
Of course, there are “special” stocks that can justify their blistering runs with equally blistering earnings growth. And though it can be hard to tell (especially in the early stages) which firms will win most from the rise of AI, I do think it makes sense to revisit one’s valuation of a company to ensure they’re not on the receiving end of the next correction.
You see, even the highest flyers can implode without a moment’s notice, and sometimes, they don’t even need something to push them down a cliff. Extended valuations are always a concern for investors, especially when the rest of the crowd pays a bit less attention to multiples, or worse, look for reasons to justify the higher multiples.
In this piece, we’ll look at two intriguing stocks that I think have what it takes to beat the Canadian stock market over the next five years. At current levels, valuations seem a tad too depressed, with expectations that seem a tad too mild given their history of impressive performance through good times and bad.
Alimentation Couche-Tard
Alimentation Couche-Tard (TSX:ATD) is a great momentum stock that can back up its rally with solid sales and earnings growth. With a concrete five-year plan and a history of maximizing synergies from every deal (large and small) it makes in the convenience store industry, I think the stock ought to be worth a lot more than $78 and change per share.
After retreating around 1.7% on Monday as a part of a market-wide cool-off (the TSX Index was down 1%), I view the recent slip as a terrific buying opportunity as Couche-Tard and its stellar managers continue to play the long game. Indeed, the company has shown it’s able to win the long game. And though Canada’s economy isn’t exactly firing on all cylinders, I continue to think ATD stock will keep on inching higher while the TSX Index struggles to regain new highs.
Between the TSX and ATD stock, I have to go with the latter every day of the week! It’s my opinion that ATD is cheap enough and growthy enough to continue beating the TSX Index over the next five years as it executes on its game plan!
BCE
BCE (TSX:BCE) is a great dividend dynamo with a 7.27% dividend yield at writing. The stock seems to have lost its way over the years. And though headwinds could keep BCE stock below $55 per share, I still view the dividend as worth collecting, even if it means jumping in at close to multi-year lows.
Of course, retirees who care more about passive income (as opposed to capital gains potential) have a lot to love about BCE stock right here. As the company takes steps to improve itself (driving efficiencies) while rates look to finally peak and retreat, I’d be willing to bet on BCE over the TSX Index over the next five years. BCE stock is just too unloved despite there being quite a bit to love for income lovers.
