Some high-quality Canadian stocks are worth pouncing on whenever they experience a lengthy period of correction or consolidation. Indeed, it’s the types of wonderful businesses that you can pick up with little or no hesitation on weakness that tend to be the best names to stash away for decades at a time. Undoubtedly, headwinds and macro pressures can always weigh down a name. But as long as the fundamentals and moat width are still there, I think that buying on dips could provide investors with a chance of getting slightly more dividend yield at a slightly better discount.
With the TSX Index running out of steam while the tech-heavier S&P 500 and Nasdaq 100 exchanges look to make new highs ahead of Donald Trump’s second term, I think there’s value for those who’ve been sitting around waiting for that much-anticipated correction.
Indeed, it’s the U.S. stocks that I think are overdue for a mild 5-15% pullback, with the TSX Index that may very well hold its own as it attempts to play catch up with the hotter indices south of the border. Of course, it’s hard to tell when investors will rotate from the high-tech innovators and back into the old economy and value plays.
Either way, the weak loonie, which recently slipped below US$0.70 for the first time in a long time, and the recent weakness in the TSX Index, I believe, partially bakes in the potential headwinds and setbacks that may hit in a matter of weeks.
Regardless, I think the following lukewarm TSX stock I’ll share with you today is worth buying if you’ve got an investment horizon that exceeds three years.
Alimentation Couche-Tard
Alimentation Couche-Tard (TSX:ATD) stock is down just over 7% from its highs. However, the longer-term momentum still seems worth backing, with the name up an impressive 93% in the last five years. Sure, the momentum has slowed, but I think there are catalysts that could renew such momentum in 2025.
First, Couche-Tard hopes to close its gigantic 7-Eleven deal, a historic acquisition that could unlock tremendous value for investors willing to stick around through the integration period. Of course, the deal could drag on for several quarters as 7-Eleven’s parent company looks to explore alternative options moving forward.
Either way, I think Couche-Tard has the tools to get the deal done in the new year. Whether or not it can happen in a friendly manner, though, remains the big question. Such a deal could help Couche-Tard power many years’ worth of next-level earnings growth. And, of course, if the deal never comes to be, there are ample other merger and acquisition targets worth going after.
Second, the stock looks quite cheap at 20.9 times trailing price to earnings (P/E). Given its pace of growth and the fact that it’s a consumer staple, I think a multiple closer to 25 times could be in the cards, especially if the company can land deals in the coming two to three years.
With shares up over 12% from 52-week lows, I’d not sleep on the name as investors seek low-tech growth plays that can ride higher.
