The broad markets may be seen as hot by some, and overheated by others. Personally, I think investors should make less of the current temperature of the broad TSX Index and insist on value where there is still value to be had. Indeed, I see plenty of undervalued names out there that challenge the decision to sell out and wait in cash until the next big market correction or bear market.
Without a doubt, timing the markets is a tough thing to do. I can’t do it, at least not consistently. And the same goes for many market veterans out there, many of whom invest with the odd correction in mind, rather than seeking to get in and out with precision. In any case, it’s time to give more love to some of the underappreciated names out there that haven’t gotten as much attention from investors amid the TSX’s S&P-beating run this year.
Even if stocks are skewed somewhere towards the heated side, I think there’s always opportunities (perhaps in the lower-beta dividend payers) to put new money to work, rather than letting inflation take over, which while less of a concern is still very much a threat to one’s purchasing power, especially if central banks keep lowering interest rates further with more regard for the employment picture than food inflation, which I personally view as still unacceptably high at around 3%.
In any case, I see the market as mostly fairly valued, with many overvalued momentum names skewing the broad markets towards the loftier end. At the end of the day, however, the stock market is a market of stocks. And self-guided investors can forego the overheated stocks for the ice-cold value names.
Alimentation Couche-Tard
I’ve been pounding the table on shares of Alimentation Couche-Tard (TSX:ATD) ever since they pulled out of the 7 & i Holdings deal. Why? The deal may have entailed too much of a premium price. And, as you may know, a higher price of admission tends to take away from the synergies to be had.
Additionally, merging with a giant like that takes a lot of time, effort, and money. Now that no 7-Eleven deal is happening, I view Couche-Tard as on track to return to its old form, whereby it can make a plethora of small, tuck-in deals every so often.
Couche’s financial position is enviable, and it will be interesting to hear more about what’s new on M&A in 2026, while Couche-Tard also strives to put delicious ready-made meals front and centre. The Guy Fieri partnership on ready-made food and low-cost meals, I believe, has transformative potential.
Once Couche-Tard beefs up its food presence, I think it’ll have what it takes to regain its earnings growth edge. Indeed, I think Couche-Tard could have a ton of upside if it were to take a page out of the playbook of fellow convenience retailer Casey’s General Stores (NASDAQ:CASY), an industry success that, unfortunately, Couche-Tard failed to acquire more than a decade ago.
Today, Casey’s is a $20.5 billion firm after soaring close to 100% in two years. Given its rural presence and focus on quality food (pizzas), CASY stock has been virtually unstoppable. If Couche-Tard thrives on food while continuing to acquire its way to further growth (preferably with rural gas stations), I think Couche-Tard stock could easily command a price-to-earnings (P/E) ratio in the 30s, just like Casey’s. Until then, the $68.3 billion Couche-Tard trades at just 18.4 times forward P/E, an absolute steal, in my opinion.
