Young investors should seek to invest in long-term growers with their TFSA (Tax-Free Savings Account) funds. Indeed, whenever there’s a chance to pick up a proven long-term growth sensation at a fair or even modest discount, young investors should be ready to make a move, even if Wall or Bay Street is starting to get gloomy, whether due to a missed earnings report (you can’t top them all the time!), some short-term bearish headline, or other potential unknowns that can startle most other shareholders. It can be hard to tell what’s a real buying opportunity and what’s a red or yellow flag that signals it’s time to hit the sell button.
That’s why investors should be ready to put in the homework so that they can know how to react to events that most others tend to overreact to. Indeed, it’s overreactions to the negative events that tend to open up a window to buy. With patience, discipline, and the ability to understand a firm’s long-term growth narrative, fundamentals, new drivers that could come to be in the medium term, and, of course, risks to one’s thesis, young Canadian investors can do well with their TFSAs.
In this piece, we’ll check in one or two names that I think would make for perfect additions for what could be a turbulent year that may not see double-digit percentage gains in the S&P 500 or TSX Index. Just because the markets get rocked with volatility and lower expected returns does not mean you can’t make a decent return when adjusted for potential downside risks. Consider the following pair if you’re looking for upside in a rather uncertain year.
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Alimentation Couche-Tard
Alimentation Couche-Tard (TSX:ATD) is a convenience store consolidator that’s trying to acquire the great 7-Eleven in what would be a historic deal in convenience retail. Indeed, it’s tough to tell the final offer price and if Japanese regulators will let such a deal go through. Either way, I like Couche-Tard’s chances at extracting colossal synergies from a convenience store behemoth that hasn’t been firing on all cylinders in recent years. Indeed, 7-Eleven in Couche-Tard’s hands could be the formula for considerable shareholder value creation, even if Couche-Tard ends up paying some percentage more.
Of course, the Circle K owner still has a long way to go before the deal ends, with many regulatory hurdles to pass. If no deal happens (there’s a good chance of this, I believe), perhaps ATD stock could gain as investors look for the firm to make “cheaper” bets in other corners of the global convenience retail market. Personally, I’m fine with either scenario, as management has proven to be a fantastic value creator through mergers and acquisitions (M&A).
Either way, I like the valuation of ATD shares after sinking 4% in the past year and around 13% from all-time highs.
Couche is a very high-quality consumer staple growth company with incredible stewards. When you consider the M&A and margin-driving opportunities, it’s clear that Couche-Tard is still very much a growth gem despite recent quarters of muted results. If TFSA investors stick with the name long term, I think they’ll be quite happy with the results. For now, though, be ready for choppiness as private equity looks to compete to buy up 7-Eleven. Will Couche-Tard walk away from its convenience store legend? Time will tell. Either way, winning 7-Eleven would be a huge win for Canadian business.
At 19.53 times trailing price-to-earnings (P/E), I think shares are a fantastic value for young investors seeking defensive growth at a reasonable price. With insulation from potential Trump tariffs and a natural hedge against a sagging loonie (a considerable part of the business is done in the U.S. market in U.S. dollars!), ATD could stand out from the pack if tariffs do come online in March.
