2 of the best stocks to watch today by The Motley Fool
© Reuters. Canadians: 2 of the best stocks to watch today
The Canadian stock market is finally finding its moment to eclipse its big brother, the S&P 500, after many years of poor performance. Indeed, the rise in energy prices and the strength of the financial services sector helped maintain the momentum of the S&P/TSX index, while the main indices south of the border fell.
Undoubtedly, this is not the kind of outperformance that investors wanted. And unfortunately, with all the horrific news surrounding the invasion of Ukraine, it’s possible that the TSX’s year of outperformance could be in the gray or even slightly in the red. It’s really hard to say what the next path for the markets is, but for those who want to take a step back to focus on value or “profitable growth at somewhat reasonable prices”, the case for buying Canadian have never tasted so good.
In fact, US investors reading this article might be tempted to swap greenbacks for loonies as they seek to capitalize on what I consider to be higher relative value in the North! Arguably, these names have not received so much hype from retail investors. As investors view value above all else (especially sales growth!), I expect names like Alimentation Couche-Tard (:ATD) and Bank of Montreal (TSX:BMO)(NYSE:BMO ) could be the new class of winners.
Alimentation Couche-Tard Couche-Tard is the quintessence of a “growth at a reasonable price” type action. The company is not exciting at all, at least on the surface. It is a convenience store giant that has grown primarily through mergers and acquisitions activity. Lately, however, the pace of acquisitions and divestitures has slowed. With a shift in focus on adapting to the new convenience store era and a little more focus on improving organic growth (same-store sales), many investors may misunderstand the company.
One thing is clear: management has a knack for creating value from its acquisitions. The pace of acquisitions has slowed, likely due to stretched valuations. While Couche hasn’t been in the headlines lately nearly as much as before when he’s been shooting and dealing on a fairly regular basis, it’s worth noting that the track record has improved so he could enjoy a bargain if he saw fit. .
With the markets falling, I think Couche-Tard might have a chance to get real value for money. Meanwhile, investors seem confused about what will happen to the company’s sales once electric vehicles become mainstream. Given the progress being made in mature EV markets, I think the worries are overblown, and ATD shares may be a relative bargain in a market environment that cares more about value and less about “sexy” stories or promises of growth.
Bank of Montreal Bank of Montreal is another boring title that you won’t hear mentioned around the water cooler. It’s a big bank that I think has one of the most underrated managers. I think the deal with Bank of the West could bolster the company’s growth prospects as it seeks to capitalize on what could be a years-long race for banks.
Indeed, higher rates and a still robust economy could paint a Goldilocks-like picture. Although BMO stock has outperformed some of its rivals, the stock is still relatively cheap at just 12.4 times earnings. With a dividend yield of 3.7% and a recent 25% dividend hike, I think BMO could become one of the “sexy” stocks for an era of rising rates and resilient economic growth.
BMO has come out of the COVID crash considerably. I think it’s only just begun.
Dumb Contributor Joey Frenette owns Alimentation Couche-Tard Inc. and BANK OF MONTREAL. The Motley Fool owns and recommends Alimentation Couche-Tard Inc.
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