The stock market continues to gyrate on a daily basis. Certain sectors will outperform on shifting outlooks, with various macro data continuing to drive many high-growth stocks higher, despite high interest rates. The thing is, with so much attention being paid to the highest-growth stocks on the market, certain value stocks such as Alimentation Couche-Tard (TSX:ATD) may be getting lost in the mix.
This company is perhaps much less well-known than a number of other Canadian stocks with similar stock charts (see above). That said, unlike other high-growth tech stocks, Couche-Tard is a much simpler business with an easy-to-understand thesis long-term investors can get behind.
For retirees looking for steady growth or younger investors looking to add a portfolio staple, Couche-Tard is a stock I think is worth buying. Let’s dive into why.
Defensiveness is going to matter more than ever
Finding a stock with a great valuation is one thing. However, I think investors may get more excited about finding a company that has the potential to continue to grow and compound over time in good and bad economies, particularly right now. The yield curve has been inverted for what seems like forever (and not just any minor inversion). And many continue to call for a recession at some point down the road.
While central banks around the world will do their best to achieve a soft landing, those concerned about the outlook for the global economy may want to seek out less economically sensitive stocks. Couche-Tard’s business model, which focuses on operating gas stations and convenience stores located around the world, is one such model that has the potential to withstand near-term headwinds. While electric vehicles (EVs) are certainly taking hold, commuters still need to fill their tanks. And there’s a growing trend toward hybrids and other internal combustion engine vehicles due to price tags right now. For those who think the consumer will remain strapped, that should be a bullish trend for Couche-Tard over the next decade or so.
Valuation matters
What makes Couche-Tard a value stock is its valuation relative to its growth rate. Trading at less than 20 times earnings, the company’s nearly double-digit revenue growth rate remains impressive. Now, this metric is coming off of difficult comps. Thus, one could argue that zooming out, this stock is cheap based on historical growth rates. That’s more how I think about Couche-Tard right now.
If the company can continue to acquire small- and medium-sized chains of gas stations and convenience stores and roll them under its high-performing portfolio of banners, plenty of organic and inorganic growth could be on the horizon. That’s my base case with this name.
Where to go from here
Couche-Tard still looks like a value stock, but its valuation has notably expanded alongside its surging share price. Accordingly, it isn’t the steal it was a year or two ago.
That said, this is the sort of long-term defensive holding I think makes sense right now. For those looking for a place to put some Registered Retirement Savings Plan capital to work, this would be among my top picks in this current environment.
