Shares of Alimentation Couche-Tard (TSX:ATD) deserve a gold star for their relative performance over the past few years. Though 2023 has been a stellar year for the S&P 500, the gains haven’t been all that impressive for stocks outside of the so-called Magnificent Seven basket. Indeed, mega-cap tech has been the leadership group that’s dragged stocks out of the gutter of late last year.
As other stocks look to do their part, I think 2024 could be a solid year that sees more firms get in on the action, especially if the American economy ends up avoiding that recession. Though a Canadian recession may be tougher to avoid, even with a few rate cuts thrown in, I wouldn’t look to be a net seller at a time like this — not when you have proven market crushers like Couche-Tard continuing to find a way to march higher, even as consumers exhibit borderline sluggish spending habits.
Retailing gets a jolt: Here’s why I’d stay with defensive retailers like Couche-Tard
Black Friday 2023 was pretty hot, sparking a nice rally for the broader basket of retail plays. However, it’s unknown as to whether the hot demand for bargains this year will translate into strength in the new year. My guess is that the consumer will be in a decent spot but wouldn’t look for them to start splurging again, at least not the magnitude of the roaring 2021 days!
With that in mind, I’d continue to stand by the more defensive parts of the retail scene. Why rely on the pulse of the consumer when you could do well, regardless of what economic conditions are in store for 2024?
Playing defence in 2024
Couche-Tard’s grown by quite a bit in recent years through various initiatives. Though it’s been somewhat busy on the front of acquisitions, most recently picking up retail assets from TotalEnergies, don’t expect Couche-Tard to stop pursuing global opportunities if it sees an opportunity to pay a sticker price that’s far less than intrinsic value. Even after the big TotalEnergies deal, Couche-Tard has the financial firepower to make a big deal at the international level.
Though I’m sure the market will continue to reward ATD stock for small-scale convenience store deals where the firm can unlock synergies, I’d be most excited about a transformative deal that pushes Couche-Tard into the grocery store market or quick-serve restaurant scene.
A convenience store kingpin with cash to spend!
Fresh food has been a strong point for Couche-Tard. As more consumers look for hot eats or a mini grocery haul, the convenience store will need to evolve accordingly to keep up with consumer demands. Indeed, Couche-Tard has proven quite resilient in the face of consumer-spending headwinds.
At the end of the day, Couche-Tard sells time back to customers. And saved time, arguably, is more valuable than any money that would have been saved going over to the local discount retailer or warehouse-based grocery store.
Either way, Couche-Tard has many ways it can beckon customers into its stores. It could take two years or more before the firm makes its next large merger & acquisition splash. However, I’d look for the firm to only ink a deal that either creates value via synergies or allows the company to improve upon its long-term growth prospects.
The bottom line
On the surface, a transformative grocery or quick-serve restaurant deal may seem expensive. But over the long haul, such a deal could prove more than worthwhile as Couche-Tard continues to find ways to outpace the TSX Index by a wide margin.
Whar’s the best part of Couche-Tard and its growth story?
It’s able to pursue opportunities at a global level. Look for its international footprint to improve by leaps and bounds over the next 10 years and beyond.
