A Top Pick for 2024 Desjardins Securities analyst Chris Li thinks the risk-reward proposition for economically and commodity-sensitive stocks “seems favourable” as 2024 approaches.
However, in a research report previewing the year ahead for consumer stocks, he warned near-term catalysts are limited and patience is required for investors.
“We expect the tug of war between staples and discretionary to continue, at least in 1H24,” he said. “Desjardins’ economic outlook calls for risks in Canada to remain skewed to the downside as the economy is expected to enter a recession next year. Furthermore, mortgage renewals will weigh on household finances into 2025 and 2026, providing a medium-term headwind to consumption and economic growth. Against a cautious consumer spending backdrop, we continue to prefer defence, at least nearterm. Our outlook is focused on company-specific themes and downside valuation.”
Mr. Li does think market volatility will create “attractive buying opportunities,” but “clear winners are once again difficult to identify (staples are well-priced and discretionary lacks catalysts).”
He named Alimentation Couche-Tard Inc. (
) his “top pick” for 2024, citing “its all-season attributes and reasonable valuation.”
“ATD remains our preferred idea given: (1) improving macro conditions and easing of cigarette headwinds next year should reaccelerate merchandise SSSG [same-store sales growth], which we believe is a key near-term catalyst; (2) continuing strong fuel margins and cost reductions are more than offsetting c-store sales softness; (3) funds flow to staples with torque to an economic recovery and less exposed to disinflationary/commodity risks; (4) a robust pipeline of growth initiatives supporting attractive organic EBITDA growth; (5) M&A environment is becoming more favourable; and (6) reasonable valuation at 16.5 times forward P/E (vs 17.5 times average),” he said.
Mr. Li has a “buy” recommendation and $85 target for Couche-Tard shares. The average is $86.25.