2 Red-Hot Canadian Stocks With Serious Room to Run

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Written by Joey Frenette at The Motley Fool Canada

Canadian stocks are starting to pick up traction again after a rocky start to the year. Shares are up more than 6% since its late-October lows. Indeed, the recovery rally is about as sharp as the plunge that started in mid-September. This goes to show the dangers of timing the market. If you were startled by the seasonal dip, you may have sold shares and missed out on the big jump — one that still looks to be going strong.

As the bull market rears its head after a period of hibernation, questions linger as to what path the economy will take in 2024. I have no idea if we’re in for no landing, a soft landing, a hard one, or something in between. For investors, I don’t think you should care, especially if you’re committed to investing for the next five to 10 years.

Does it really make a difference if the economy is let down softly rather than nosediving into the tarmac? If you’re invested for the next 10 years (or more), it’s arguably better to have a rougher landing. That way, you’ll have more bargains to pick from when the markets sag, and investors hit the panic button.

In this piece, we’ll look at two hot Canadian stocks that seem almost unstoppable. With strong momentum behind them and still-modest valuation metrics, I view each name as a relative winner, regardless of what the market serves us in the new year.

Alimentation Couche-Tard

Few firms sport business models and earnings-growth trajectories that are as predictable as Alimentation Couche-Tard (TSX:ATD). It’s a convenience store giant with wonderful value-focused managers, an incredibly strong balance sheet (which opens up merger and acquisition opportunities), and the ability to fare well through hostile environments. The past few years of inflation and consumer weakness haven’t weighed on Couche-Tard shares.

In fact, the company has dodged and weaved past punches that have knocked most other retailers on the seat of their pants. Today, the stock’s going for $77 and change, with a 18.3 times trailing price-to-earnings multiple, which I view as too low given the high-quality earnings growth you’re getting from the firm.

At the end of the day, you’re not just getting steady earnings growth from the firm behind such banners as Circle K; you’re getting a very high quality of earnings. And right now, I don’t believe the market is rewarding the firm for such quality just yet. As the company hunts deals in the convenience store space, look for Couche-Tard to continue rolling higher, as it continues to give consumers what they want.

Constellation Software

Constellation Software (TSX:CSU) is another earnings grower that’s close to all-time highs. The stock goes for over $3,100 per share. That seems expensive, but relative to its growth prospects, I’d argue CSU stock may actually still be undervalued.

Indeed, the recent spike saw shares surge 15% off October lows. Although I’d prefer waiting for a pullback before buying a large position, I’m not so sure shares will come in. Like Couche-Tard, Constellation is a master at creating value from acquisitions. As the tech market recovers, I find it’ll be hard to knock Constellation off the podium, as it continues to seize opportunities in its corner of the software scene. The 0.83 beta also entails less correlation to the TSX Index, something seen as desirable for investors expecting tough market terrain in 2024.

Over the past year, shares are up 56%. Going into 2024, I think the path of least resistance is higher.

The post 2 Red-Hot Canadian Stocks With Serious Room to Run appeared first on The Motley Fool Canada.

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Fool contributor Joey Frenette has positions in Alimentation Couche-Tard. The Motley Fool has positions in and recommends Alimentation Couche-Tard. The Motley Fool recommends Constellation Software. The Motley Fool has a disclosure policy.