It can be pretty tough to time sizeable comebacks, especially if we’re talking about a company that’s fallen drastically out of favour, either due to industry headwinds or company-specific matters that may or may not be solvable. Indeed, strategic turnarounds and comeback plans don’t always come to fruition in a timeline that’s quick enough for value investors.
That said, I do think that some names are worth picking up, provided you have faith in management’s ability to execute on a comeback plan. And, of course, you should have the patience and time horizon to wait for the changes to happen behind the scenes. In my view, it’s not enough to just have a turnaround plan.
After all, any firm can put together a plan in place to entice investors. What’s really a game-changer, at least in my humble opinion, is the management team’s ability to act on a plan and maybe even overdeliver on promises. For value investors, one needs to have more than faith in a company’s stewardship at a time of turmoil; one must have faith that a company can do well, regardless of who’s in the driver’s seat.
To paraphrase the great Oracle of Omaha, Warren Buffett, you should seek to own the kinds of businesses that can be run by someone who isn’t exactly an exceptional steward. Indeed, management teams are important, but if you’ve got a business that’s powerful enough to do well over decades, through good managers and bad, you might have a business that’s worth picking up and stashing away in a TFSA or RRSP for the long run.
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Alimentation Couche-Tard
One name that, in my view, is equipped for a huge comeback this year is Alimentation Couche-Tard (TSX: ATD). Arguably, it has already begun its comeback, with shares recently rocketing past $90 per share for the first time. Though this breakout moment was a long time coming, I do think that the rally has legs, especially as the “misunderstood name” looks to get back on the M&A track. Indeed, the stock was unfairly punished for fuel price volatility experienced earlier in the year.
As it turned out, Couche-Tard wasn’t as vulnerable as some may have thought. Indeed, if you listened to the managers, you would have done quite well with the name. What’s up ahead, according to new CEO Alex Miller and his team?
While Couche-Tard is starting to shine again, it is worth noting that the name has lagged the TSX Index in the past two years, gaining just 14.6% versus around 60% for the TSX Index. With a “Core + More” strategy that aims to improve upon food and essentials (fuel, nicotine, and drinks) as well as forward-looking earnings drivers (M&A and new futuristic concepts, including EV charging and frictionless checkout), I do think that another leg higher could be in the cards as investors look to uncover the hidden value they’ve been missing from the name.
While Couche-Tard has thrived on “core” of late, I do think that the “more” aspect could be the hidden catalyst that helps Couche-Tard make a huge comeback as it looks to outpace the TSX Index once again after a two-year breather. If you’re willing to hold through 2030, I think the name could be a growth-value gem. In my view, frictionless checkout and more tech in stores could be a huge margin driver as the firm looks to remove hurdles in the way of shoppers who come into its doors.
Bottom line
For a glimpse of the future, look no further than the Couche-Tard Connecté stores (a compelling concept that may one day become the norm), which leverage computer vision at the till to make for a labour-light store. Add the Fit-to-Serve initiative (it plays on the automation and optimization playbook) into the equation, and it’s more apparent that the runway is clear for next-level earnings growth through 2030 and beyond.
