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2 Recently Corrected TSX Stocks That Could Bounce

·4 min read
work from home

Alimentation Couche-Tard (TSX:ATD.B) and CN Rail (TSX:CNR)(NYSE:CNI) are two recently corrected TSX stocks that took a major hit to the chin in recent weeks but are in the process of climbing back. Each name suffered a sharp, likely overblown correction over acquisition attempts. Each TSX stock’s correction is probably unwarranted through the eyes of a long-term investor.

Let’s have a closer look at each freshly corrected TSX stock to determine whether one is worthy of picking up here as it looks to bounce potentially above its highs.

Alimentation Couche-Tard

Couche-Tard kicked off the year with a nasty correction. From out of nowhere, the convenience store giant surprised shareholders by going after French grocer Carrefour. The company had a swelling cash and credit pile. And after having been mostly quiet for well over a year, investors expected a major splash in the convenience store space. Investors hated Couche’s decision to go after the grocer. Even though the deal amount to nothing, as do many of Couche’s acquisitive pursuits, the stock remained stuck in limbo.

More recently, shares have started to pick up meaningful traction, surging more than 22% from their January 2021 lows. Have investors warmed up to having Couche’s next deal be in the grocery space? Only time will tell. Regardless, I think the stock is a buy as it approaches its fourth-quarter fiscal 2021 earnings, which are on tap this Friday.

Amid continued COVID-19 pressures, Couche-Tard will experience a dampened top line. Still, expectations appear modest, with lower fuel sales and margins to be expected. Should Couche dip post-earnings, I’d look to be a buyer because the future definitely looks brighter as Canada winds down from its third COVID wave and sales look to bounce back. Add likely M&A moves into the equation and I like the setup for Couche-Tard heading into the summer season.

The stock trades at a mere 0.9 times sales, which is far too low given the type of growth the convenience store behemoth is capable of. Grocery or convenience store acquisition, Couche-Tard is likely to only pull the trigger if there’s a high chance it’ll produce (rather than destroy) shareholder value.

CN Rail

Speaking of acquisitions, CN Rail stock has derailed of late, plunging around 16% as it swept in to steal CP Rail’s prize: Kansas City Southern. At nearly US$34 billion, the historic rail deal has been tough for investors to justify. Some folks thought that CN Rail was trying to make life harder for its rail peer, but that’s not the case. CN Rail is now the likely winner of KSU assets, which, while expensive, will turn the rail behemoth into one of the most dominant railways in North America, with exclusive access two both borders and more ports.

CN Rail was a play on Canadian/U.S. trade; now it has Mexico thrown in, making CN Rail a name that stands to be a major beneficiary of the USMCA trade deal. More recently, CN Rail announced its intention to divest a 70-mile rail line in Louisiana to better appease regulators and eliminate rail overlap. The news sent CN Rail shares surging 2.6% on Wednesday, and I think it marks the bottom of this brutal sell-off.

Investors looking for shares of a wide-moat firm should look to load up before the profit train has a chance to leave the station. Next stop? Probably a new all-time high, as investors have more of a chance to digest the CN-KSU deal, a massive North American rail deal that may very well be the last of its kind.

The post 2 Recently Corrected TSX Stocks That Could Bounce appeared first on The Motley Fool Canada.

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Fool contributor Joey Frenette owns shares of ALIMENTATION COUCHE-TARD INC and Canadian National Railway. David Gardner owns shares of Canadian National Railway. The Motley Fool owns shares of and recommends ALIMENTATION COUCHE-TARD INC and Canadian National Railway. The Motley Fool recommends Canadian National Railway.

2021

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