1 Growth Stock I’d Buy Over Shopify as Rates Rise

Restaurant Brands International (TSX:QSR)(NYSE:QSR) is my preferred Canadian stock to buy over the likes of Shopify (TSX:SHOP)(NYSE:SHOP) in 2022.

| More on:

Shopify (TSX:SHOP)(NYSE:SHOP) stock is an e-commerce giant that’s never a good idea to bet against. Over the past few years, the giant has risen to the very top of the Canadian stock market. Undoubtedly, it’s a force to be reckoned with, and I think that it will stay on top of the TSX Index, as Canada’s most valuable firm.

Why?

It has a legendary founder-led management team that knows how to pivot, not only to keep growth alive, but to truly innovate and create value for its customers. Shareholder value creation is just an after-effect. Although Shopify stock will likely continue marching higher over the next five to 10 years, I think that, over the near to medium term, that investors should be careful entering the name. It’s a fantastic company. There’s no doubt about that. My concern with Shopify is the valuation and the stage that seems to be turned against the highest-growth stocks with price to revenues that are in the high double digits.

Shopify: Wonderful company but a suspect valuation in the face of higher interest rates

Now, Shopify is worth a massive premium. That much is clear. That said, just how much of a premium it should have in the face of a higher interest rate environment is the million-dollar question. With high-growth names taking a nosedive across the board going into the holiday season, I’d argue that there’s no need for investors to rush into the most battered names — notably, Shopify stock on this side of the border.

Investors are bracing themselves for higher rates, with the Fed poised to hike three times in 2022. As central banks try to find the right balance between fighting economic stalling from surging Omicron COVID cases and high levels of inflation, there’s a chance for surprises on both fronts. Currently, three rate hikes are factored in. But could more be needed to get the inflation genie back into the bottle? That’s possible, especially after the Omicron wave blows over in the coming quarters. Higher rates are bad news for red-hot growth stocks like Shopify. And in this piece, we’ll have a look at just one of the names that could thrive in the face of higher rates and persistent COVID.

Restaurant Brands International

Restaurant Brands International (TSX:QSR)(NYSE:QSR) gets a weak grade for its performance through the pandemic thus far. Indeed, drive-thru infrastructure and mobile initiatives weren’t at par for some of the firm’s brands. Although QSR came up short, especially versus its fast-food peers, it has put its money towards initiatives to improve itself and make itself more pandemic resilient. Nobody knows when COVID will end. That’s why such investments in modernization and adaption, even after the fact, are important. I think investors are discounting such efforts, as they look to make their way into the results steadily over the next year or so.

Great brands will shine through in the end. And with a fourth brand, Firehouse Subs, to beef up growth, I think investors are getting a massive bargain here. Unlike most other growth stocks, Restaurant Brands is profitable. The path behind it suggests the growth has faded. But looking ahead, the stage looks set for double-digit top-line growth, even if the pandemic doesn’t go endemic anytime soon.

The bottom line

As rates rise, price to earnings will matter much more. A name like QSR can stand to rally, as a name like Shopify contracts in a way such that its hefty valuation metrics compress accordingly.

Profitable growth and improved pandemic-resilience characteristics make QSR stock a great buy in my books. The valuation is also absurdly low, discounting the long-term expansion potential behind some of the firm’s legendary chains.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Joey Frenette owns Restaurant Brands International Inc. The Motley Fool owns and recommends Shopify. The Motley Fool recommends Restaurant Brands International Inc.

More on Investing

gas station, convenience store, gas pumps
Investing

Is ATD Stock a Buy Right Now?

Let's take a closer look at Alimentation Couche-Tard (TSX:ATD) and whether this top Canadian growth stock is worth buying at…

Read more »

Nvidia Voyager Headquarters
Tech Stocks

Why Nvidia Stock Rallied (Again) on Tuesday

The chipmaker is expected to report earnings this evening.

Read more »

hand stacking money coins
Tech Stocks

3 Growth Stocks That Are Screaming Buys in November

The market might be soaring, but there are still lots of deals to be had. Here are three discounted stocks…

Read more »

tsx today
Stock Market

TSX Today: What to Watch for in Stocks on Wednesday, November 20

Despite volatile commodity prices, the TSX Composite continues to trade above the 25,000 level as investors closely monitor updates related…

Read more »

Blocks conceptualizing Canada's Tax Free Savings Account
Dividend Stocks

TFSA 101: Earn $1,430 Per Year Tax-Free

Are you new to the TFSA? Here are three strategies to optimize its tax benefits to earn annual passive tax-free…

Read more »

concept of real estate evaluation
Dividend Stocks

Buy 1,154 Shares of This Top Dividend Stock for $492.54/Month in Passive Income

This dividend stock can pay out top cash every month, sure, but has even more to look forward to.

Read more »

chart reflected in eyeglass lenses
Energy Stocks

Best Stock to Buy Right Now: Canadian Natural Resources vs Cenovus?

Want to invest in Canadian energy? Canadian Natural Resources and Cenovus Energy are two of the largest, but which one…

Read more »

TFSA (Tax free savings account) acronym on wooden cubes on the background of stacks of coins
Dividend Stocks

How to Use a TFSA to Create $1,650 in Passive Income for Decades! 

If you spend a lot, consider the dividend route to create a passive income for decades. The TFSA can be…

Read more »