As the market remains relatively heated through the hottest months of summer, long-term investors might wish to take a step back and reconsider which names it’s time to top up and which to hit the sell button on. Of course, not every stock selection can be a winner.
And while I’m a firm believer in patience and investing through the ups and downs over many years, I also think it’s wise to stay informed about new developments and how the fundamentals may have shifted since one initially hit the buy button. Indeed, fundamentals can take a turn for the worse, or industry headwinds can present themselves.
Add potential company-specific woes into the equation, and I do think that July is a great month to take a closer look at the portfolio so that one can pare a name that’s overvalued, overheated, or just dead money for something that’s either timelier or more undervalued. Indeed, reserving spots in your portfolio for the best ideas, in my view, is a smart way to go.
Let’s look at two names I’m thinking about buying (more of), and one that I might start trimming depending on the next few weeks’ market action. First, let’s start with the two buys:
Source: Getty Images
Buy idea #1: Alimentation Couche-Tard
Alimentation Couche-Tard (TSX: ATD) stock looks like a great, timely bet, even after spiking more than 13% in the past month. Indeed, the company reportedly had a shockingly good quarterly result in a climate that saw choppy action in gas prices. As I mentioned in previous pieces, higher oil prices did not necessarily mean that fuel margins would work against Couche-Tard. And that the selling related to the Iran war-driven spike in the price of oil made very little sense.
As it turned out, Couche-Tard was able to pole-vault past expectations, but the big question is what comes next now that the shares have had a chance to correct to the upside. Personally, I think the stock remains a long-term value play at just 19.1 times trailing price to earnings (P/E). If the firm can keep going on acquisitions, my guess is that more surprisingly good quarters could be in the cards.
Add the potential innovations that could be rolled out more broadly, like those seen at Montréal’s Couche-Tard Connecté location at McGill University, and I think Couche-Tard is as much a tech-powered margin expansion as it is a merger-and-acquisition one.
After trying the seamless checkout process at McGill’s retail innovation lab, which doesn’t involve a cashier, I must say that I’m a believer. Indeed, “just walk out” shopping and enhanced offerings might just be the key to levelling up the growth rate.
Buy idea #2: Air Canada
Air Canada (TSX: AC) is another name that could be ready for a big breakout. After a strong quarterly result and the summer travel season in full swing, it will be very interesting to see how high the shares can fly in the second half. Surely, lower jet fuel prices are a shot in the arm.
What’s more, though, is that the firm might be in for a surprise now that there’s a bit of haze when it comes to the full-year guide. While the airline isn’t exactly firing on all cylinders quite yet, I like the long-term setup, as the firm spends to get new fuel-efficient aircraft in the fleet to enhance operating economics, especially on lengthy international flights. At just 10.2 times trailing price to earnings (P/E), shares look like a great deal.
The sell: Canadian Pacific Kansas City
Canadian Pacific Kansas City (TSX: CP) is a great rail play, but it’s flirting with new highs, and I just think there’s not much upside in the tank with the 27.8 times trailing P/E multiple, which is a lofty premium to the peer group.
Add further uncertainties facing the Canadian and U.S. economies, and I’d much rather be taking profits here than being a buyer. Does CPKC deserve a premium over other rails? Perhaps, but the current one, in my view, is too hefty for my liking. The 1.22 beta is also a bit high for investors looking for less volatility in a market climate that could get bumpier in the second half.
