What a month of September it’s been for the broad stock markets on both sides of the border. With the TSX Index now up 7% in the past month, it can feel pretty bad to be on the sidelines with too much cash or cash equivalents.
Undoubtedly, buying up stocks or a broad-based index fund at higher prices can feel uneasy, especially since every move higher is some percentage closer to the peak and the start of the next correction or bear market. Indeed, it’s good to be a bit more cautious when stock valuations swell.
But there’s more to being fearful as others around you start to get a bit greedy. Arguably, the valuations on your average TSX stock do not scream bubble. Though I can’t say the same of some of the fast movers in the U.S. tech sector, I do think that Canadian investors should steadily step up their cautiousness, rather than shift gears from bullish to bearish overnight just because of a major past-month move.
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Looking for a breakout buy? Look for underappreciated value names
Of course, a massive market melt-up in September could be followed by an equally painful October. It’s hard to say.
However, buying a correction is far easier said than done, especially if the cause of such a correction is particularly severe, whether it be a pandemic, tariffs, a “vicious” valuation reset, or some geopolitical event. In any case, this piece will explore a name that stands out as a great breakout play that looks fairly resilient and perhaps underpriced, even as the TSX Index looks to pick up the pace going into the final quarter.
So, which TSX stock has what it takes to finish the year at higher highs? Consider modestly priced stocks with proven long-term growth profiles, such as convenience retailer Alimentation Couche-Tard (TSX:ATD) here in Canada.
Alimentation Couche-Tard
Couche-Tard stock used to be a defensive growth gem that delivered. However, over the past two years, shares have lost much of their lustre, declining by around 3%. Looking back, the whole 7 & i Holdings takeover attempt, in my opinion, was a distracting news item that overshadowed the real long-term growth opportunity at hand. With management recently showing signs it’s ready to move on and pursue other deals, I do think the synergy-hungry Couche-Tard is poised to start really wheeling and dealing. And, with that, I expect the multiple to expand while earnings growth looks to pick up over the next three years or so.
Despite another failed acquisition attempt and unimpressive sales and earnings numbers in its first quarter, I still think Couche-Tard has a durable growth engine that can propel the stock faster than most folks think. At less than 20 times trailing price-to-earnings (P/E), shares look like a steal of a deal, especially given the potential organic and inorganic growth catalysts in store.
For Couche-Tard, growth through acquisition remains a key pillar of growth, and once the deals do get inked, I suspect shares will start going higher again because shareholders know better than most that each deal is likely to be a driver of value.
Finally, as interest rates fall, the window for deal-making could really open. As such, I view Couche-Tard as the absolute perfect M&A play to pick up on weakness. Lower rates increase Couche-Tard’s purchasing power. And I do think it’ll hit some home runs at some point over the next few years.
