August has been a rocky month for Canadian stocks. However, you can use that volatility as an edge. Periodically, the market draws everything down, even the greatest companies. When that happens, you can pick up stocks in quality businesses at a fair or even great prices.
While the market has recently bounced back, there are lots of worries and fears in the market today. There could be an even larger pullback in the fall. Now is the time to start building a list of stocks in high quality businesses. When they draw down, you can be ready to surgically deploy your capital.
If you are looking for some high-end stocks to buy on the next drawdown, here are two to consider today.
Add this long-term compounder on the pullback
Alimentation Couche-Tard (TSX:ATD) is one of the largest convenience store and gas station operators in the world. The company just announced that it was in discussions about merging with its largest competitor, 7-11 (owned by Seven and I Holdings in Japan).
With mixed worries about such a large deal, Couche-Tard stock is down 6% in the past few days. It has been a bit of a challenging year for Couche-Tard. The economy has cooled and consumer demand for convenience products has moderated.
This is a concern to monitor. However, you must look at the company’s long-term record. Couche-Tard has delivered a 100% total return in the past five years and a 438% return in the past 10 years. Those are solid returns from a solid, low risk business.
The convenience retailer has done a great job consolidating the sector by acquiring both large and small portfolios around the world. It can use its scale, brand, and marketing expertise to lower costs, extract synergies, drive demand, and capture market share.
While a future acquisition of 7-11 is uncertain, analysts expect the deal could drive substantial earnings per share accretion in the coming years. Regardless of it happening, the company has made several other smart transactions this year that could continue to promote solid growth ahead.
A high-quality blue-chip stock to buy on weakness
Another Canadian stock that looks attractive is Canadian Pacific Kansas City (TSX:CP). Its recent acquisition of Kansas City Southern now puts it up in the big leagues with a network that is comparable in size to most other North American peers.
CPKC also has the only single-line network that reaches across Canada, the United States, and Mexico. CPKC is only in the early days of unlocking the power of this combined portfolio.
Already, synergies have exceeded the market’s expectations and management believes there is more accretion to come. In fact, it is projecting to double its earnings per share over the next four to five years.
There is one caveat to the future optimism. CPKC has recently shut down its Canadian network due to a union strike. It is uncertain how long this could last.
Management has planned for a couple of weeks. However, any prolonged period of shutdown beyond that could seriously impact its ability to hit 2024 earnings projections.
CPKC stock is down about 6% in the past month. If you don’t mind investing with the prospect for some share volatility, now could be an attractive entry point.
CPKC is a very well-run business with sector-leading assets and a generally lower risk business model. Any further weakness on bad news could be a great buying opportunity for shrewd investors.
