Instead of chasing where the momentum is in the market, I think it makes a whole lot more sense to think about the kinds of undervalued names that could be next to have their moment in the spotlight.
Indeed, chasing momentum is a risky game that many new investors might be unknowingly playing when they should be looking to invest for the extremely long term. With enough patience and a really long investment horizon, I do think that it is possible to score solid results while steering clear of the heated parts of the market that can reverse course at the drop of a hat.
Sure, there’s money to be made in trading hot stocks, but do keep such activity separate from your long-term investment account, which shouldn’t be used to pursue quick gains. Instead, it should be a spot for boring value ideas with long-term growth narratives that might not yet be priced in.
While the value plays in today’s market might be a bit on the untimely side, at least until a growth-to-value rotation hits again, I still think that the technical picture is starting to look quite good.
Of course, technicals should come after you’ve done the fundamental homework on a company. But whenever the technicals and fundamentals align, investors might be looking at an opportunity to do quite well relative to the rest of the market, but especially over extended periods of time (think the next five to eight years or so).
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Alimentation Couche-Tard
Alimentation Couche-Tard (TSX: ATD) looks like quite the convenience retail sleeping giant right here at just north of $80 per share. It’s been a while since a big deal was struck, but the optionality remains there. With the stock experiencing newfound momentum, up more than 3% in the past week alone, I do think that the name might be ready to test new highs once again, perhaps in just a few months. Either way, the war in Iran has introduced a bit more volatility into the stock.
Indeed, higher prices at the pump are going to affect the coming quarter. But the big question, in my view, is what the company is going to do with its cash and credit. Is a big M&A deal looming? Or are buybacks and reinvestment the way to go? Either way, I think long-term investors win with the name.
Though, I’m sure investor patience will be tested in the second half if the firm doesn’t start wheeling and dealing again. At the end of the day, synergies and growth-by-acquisition are among management’s strong suits. At 20.2 times trailing price-to-earnings (P/E), ATD looks like a cheap defensive (consumer staple) growth company that’s worth watching closely as it moves on from a rather sluggish past few years.
Dollarama
Dollarama (TSX: DOL) stock is down just shy of 15%, and it’s a dip that I think is buyable after one of the worst single-day dips in close to eight years. Indeed, it’s going to be a nail-biter as we head into the next earnings result on tap for next week. But I think the valuation is in the right spot at 37.1 times trailing P/E. Inflation is coming, and consumers are going to feel the pinch in their budgets.
That calls for more shopping at discount retailers like Dollarama. As the firm expands while keeping shelves stocked with competitively priced products, I see the name continuing to win. The big question is whether the next quarter can help power a return to new heights.
