Investing over a longer horizon can create substantial wealth. It allows you to benefit from compounding while protecting against short-term fluctuations.
Meanwhile, Canadian equity markets have been upbeat over the last two quarters, with the S&P/TSX Composite Index rising 13.4%. Despite the strong broader equity markets, the following two Canadian stocks have been under pressure over the last few months for various reasons. However, their long-term growth prospects look healthy. So, the recent sell-off has provided excellent entry points for long-term investors.
Alimentation Couche-Tard
Alimentation Couche-Tard (TSX:ATD) operates 16,700 convenience stores across 29 countries. Last year, it outperformed the broader equity markets, delivering over 32% of returns. However, the company has been under pressure this year, losing 2.8% of its stock value and is down around 13% compared to its 52-week high. The company’s weak third-quarter performance, which ended on February 4th, made investors nervous, leading to a pullback.
ATD’s total revenue fell 2.2% during the quarter due to a decline in the selling price of transportation fuel, lower aviation fuel sales, and weak same-store sales. The company’s management blamed the challenging macro environment for lower footfalls, which led to negative same-store sales across Canada, the United States, Europe, and other regions. Also, its adjusted EPS (earnings per share) declined 12.2% to $0.65 during the quarter.
Meanwhile, ATD’s valuation has also fallen to attractive levels amid the recent correction, with its NTM (next 12 months) price-to-sales multiple at 0.7. Despite the near-term weakness, ATD’s long-term growth potential looks healthy. Given the highly fragmented U.S. retail market, with single stores dominating the mix, the company is well-positioned to strengthen its footprint, considering its scale, optimized supply chain, and ability to develop private-label brands. It has adopted “10 For The Win,” a five-year strategy to increase its adjusted EBITDA (earnings before interest, tax, depreciation, and amortization) to $10 billion by 2028. So, I am bullish on ATD despite the near-term weakness.
BCE
Amid digitization and growth in remote working and online learning, the demand for telecommunication services is growing. Besides, telcos earn substantial revenue from recurring sources, making their cash flows stable and healthy. The telecom sector is capital-intensive and requires several regulatory approvals, thus creating entry barriers for new entrants. So the existing players can maintain their market share and margins. Given the healthy growth prospects of the sector, I have picked BCE (TSX:BCE) as my second pick.
BCE’s investments in expanding its 5G and broadband infrastructure have led to growth in its customer base and ARPU (average revenue per user). Given the expanding addressable market and BCE’s growth initiatives, its long-term outlook looks healthy. Further, it has been raising its dividends for 16 consecutive years and offers a juicy forward yield of 8.7%.
However, BCE has been under pressure over the last 12 months due to an unfavourable decision by the CTRC (Canadian Radio-television and Telecommunications Commission) and rising interest rates. The new decision from the CTRC forces large telephone companies to share their fibre-to-the-home (FTTH) networks with smaller players, which could improve competition, and customers could also benefit from better service and lower prices. However, the decision would disincentivize companies, such as BCE, which have invested aggressively in expanding their FTTH services. So, BCE has lost around 30% of its stock price compared to its 52-week high.
Meanwhile, BCE’s steep correction offers an excellent buying opportunity for long-term investors, given the growing demand for telecommunication services, its high dividend yield, and its attractive NTM price-to-earnings multiple of 15.
