The 2 Stocks at the Very Top of My Watchlist

Watch Alimentation Couche-Tard (TSX:ATD) and another retail growth stock closely in the second half.

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As the Canadian stock market looks to pick up speed over the coming months, investors may wish to nibble away at some of the cheap stocks on their watchlist. In this piece, we’ll check in on two stocks that are at or pretty close to the top of my buy watchlist. Though only time will tell where the TSX Index heads from here, I’m a fan of the risk/reward scenario and the potential for TSX-beating gains over a two-year window.

Undoubtedly, I’m not quite ready to smash the buy button quite yet. However, should the recent late-May jolt of volatility lead to a correction (or half a correction) in June and July 2024, I certainly wouldn’t be afraid to nibble into a position. Indeed, buying the dip has been quite rewarding in this brand-new bull market.

But with corrections fewer and further between and the sub-10% dips getting quite shallow (the April dip saw the TSX Index fall just shy of 4% before bouncing back swiftly), investors with some excess cash sitting in a savings account may wish to consider biting on the decently valued names on any subtle pullbacks. And if you’re too heavy in cash, I’m not against buying right here, even as the TSX Index flirts with new all-time highs.

Let’s check in on a dynamic duo that Canadians may wish to keep closer watch of as the final month of the first half begins.

Alimentation Couche-Tard

I already own a sizeable stake in shares of Alimentation Couche-Tard (TSX:ATD). However, on the recent pullback, I’d be willing to pick up a few more shares as they look to zig as the TSX zags. After soaring more than 2% on Thursday’s ugly down day for the TSX Index (it sagged 0.65% on the sessions), ATD stock seems ready to recover from its recent 14% fumble. I find the newfound momentum could be the start of a move back to all-time highs, with a potential double-bottom technical formation that seems to be in the works.

The convenience retailer is poised to steadily grow its earnings over the coming years, thanks to smart acquisitions and efficiency-driving moves. With the latest round of earnings (fourth quarter of fiscal year 2024) due on June 25, 2024, investors may wish to stash the name atop their watchlists. I have a feeling ATD stock could have more big up days, even as the rest of the market looks to give back some of the recent gains.

At 19.2 times trailing price to earnings (P/E), ATD stock may not be dirt cheap, but should a revisitation of year-to-date lows ($74 and change) be on the horizon, I’d be tempted to add to my position.

Dollarama

Dollarama (TSX:DOL) stock is another high-growth retailer that I’m watching closely as we move into summer. The stock is sitting at new highs at around $124 per share. The hot run has been driving by some remarkable quarters. That said, there’s also been a bit of multiple expansion as well, with shares now going for almost 35 times trailing P/E. That’s quite expensive for a discount retailer, but given its value-rich products and an aggressive long-term plan to expand, I find the rich multiple may just be worth paying for.

Personally, though, I’m waiting for a pullback to a level where shares go for closer to 30 times trailing P/E. Yes, the defensive growth prospects are desirable, but I’d encourage investors to insist on a wider margin of safety as Canadian consumers recover from inflation.

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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