TFSA Growth: 2 Canadian Momentum Stocks That Are Still Cheap

Alimentation Couche-Tard (TSX:ATD) stock and another top grower that could do well over the long run.

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There are more than a few Canadian momentum stocks that look intriguing as we head into April. Indeed, chasing hot momentum plays can be dangerous if you don’t conduct a thorough analysis.

At the same time, momentum plays shouldn’t be avoided just because they’re up by a considerable amount over a short timespan if earnings are surging at an accelerating rate and the valuation metrics stand to contract accordingly. Sometimes, you really do need to pay up to get high-quality growth. But Tax-Free Savings Account (TFSA) investors must ensure they’re not at risk of overpaying for a firm that may struggle to beat expectations as industry dynamics begin to shift against it.

That’s why the cyclical firms (think those in the heavy-duty equipment, commodity, or auto industries) can be tough to value given the boom-and-bust nature of demand that can pave the way for absurd levels of volatility. In a cyclical upswing, such a cyclical firm stands to “over-earn,” only to underearn at some point down the road.

That’s the boom-and-bust nature of cyclical discretionaries in a nutshell. In this piece, we’ll look at two non-cyclical momentum stocks that I believe can continue growing at a steady pace from here as underlying fundamentals improve. So, without further ado, please do consider the following if you’re looking to hit back at Mr. Market.

Alimentation Couche-Tard

Alimentation Couche-Tard (TSX:ATD) is a consumer staple that tends to be a steadier upward ride compared to most other stocks (especially the cyclicals). The convenience store giant has continued to grow its top and bottom lines organically and via smart deal-making. With a rock-solid balance sheet and enough financial flexibility to make many tuck-in acquisitions (or one game-changing deal, perhaps in the grocery space), Couche-Tard looks to have an “option” whenever the industry and economy head south in a hurry.

More recently, Couche-Tard inked a deal to bring DavidsTea products to around 1,500 Couche-Tard-owned stores (mostly Circle K). I think the deal is brilliant and could really take merchandise sales growth to the next level. DavidsTea is a trusted and tasty brand. I’m sure Canadians can appreciate the convenience of picking up their favourite teas at the local Circle K or Couche-Tard alongside their convenient mini-hauls!

With value-conscious managers, I’d look for shares of ATD to continue inching steadily higher from here. The stock recently suffered a 10% correction and is looking absurdly cheap for TFSA investors looking to jump in around $77 and change. Given the earnings growth profile, I believe the 18.6 times trailing price-to-earnings multiple is way too low.

TFI International

TFI International (TSX:TFII) is another earnings grower that’s really been scorching this past year, now up 38% over the timespan. With a modest 1% dividend yield and the means to rocket on the back of Canada’s next big expansion (I think one could hit after the Bank of Canada slashing rates), I view TFII stock as an intriguing long-term buy here and now.

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Shares look like a steal for TFSA investors while they’re going for less than 21.5 times forward price to earnings. Indeed, the less-than-load (LTL) trucker still has what it takes to dominate despite its relatively small $18.24 billion market cap.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Joey Frenette has positions in Alimentation Couche-Tard. The Motley Fool has positions in and recommends Alimentation Couche-Tard. The Motley Fool has a disclosure policy.

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