Why Canadian Tire Corporation Limited and Toronto-Dominion Bank Are Loving Low Oil Prices

Take advantage of low oil prices by buying Canadian Tire Corporation Limited (TSX:CTC.A) and Toronto-Dominion Bank (TSX:TD)(NYSE:TD).

| More on:
The Motley Fool

It now looks like we’re entering a new era for oil prices. And within Canada, there are some big winners and losers. The losers are fairly obvious: energy producers and their investors. But there are also some significant winners.

For example, anyone who drives a car benefits from lower gas prices. Exporters benefit from a declining Canadian dollar. Provinces like Ontario and Quebec (which rely more on exports than energy), benefit as well.

So with that in mind, where should you direct your investment dollars? Below are two companies that could benefit greatly from reduced oil prices.

1. Canadian Tire

Canadian Tire Corporation Limited (TSX: CTC.A) should be licking its chops at the prospect of lower oil prices. This is mainly because low oil prices benefit its customers.

Think about it – the company sells mainly to working class people, who can spend a big chunk of their paycheck on gasoline. So lower gas prices should put some extra money in their pockets just in time for Christmas.

Even better, a large share of Tire’s revenue comes from auto service. And if Canadians can afford to drive more, then perhaps they’ll need more maintenance work.

Finally, Canadian Tire operates 300 gas stations, which should also benefit from lower oil prices. This is because when oil prices plummet, gas prices fall too, but more slowly. So during the process, gas stations can make extra margin on sales.

There is one area of concern here. Tire is an importer; many of the products you see on its shelf come from other countries. So a weaker loonie doesn’t help here. But Tire has a comprehensive hedging program, so the company may not be hurt as much as its competitors are.

2. Toronto-Dominion Bank

This may not be as obvious, but Toronto-Dominion Bank (TSX: TD)(NYSE: TD) benefits too. Allow me to explain.

First of all, the bank has limited exposure to Canada’s energy companies. To illustrate, only 2% of corporate loans are made to the energy sector. Secondly, the bank doesn’t do much Capital Markets business. So it doesn’t rely on energy companies for investment banking revenue. Likewise, falling stock prices have minimal impact.

Also, like Canadian Tire, TD’s customers benefit greatly from lower gas prices. In Canada, TD is heavily concentrated in Ontario, so its customers benefit from lower gas prices and a lower loonie. TD also has a big United States presence on the East Coast, and those people are loving low gas prices too.

So expect TD to continue performing great numbers. After all, its main customers should have no problem paying back their loans, and may even want some new ones.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Benjamin Sinclair has no position in any stocks mentioned.

More on Bank Stocks

analyze data
Bank Stocks

The Average Canadian Stock Investor Owns This 1 Stock: Do You?

This Canadian stock has about 49% ownership by the public, and with growth and dividends to consider, it's a top…

Read more »

falling red arrow and lifting
Stocks for Beginners

1 Dividend Stock Down 18% to Buy Right Now

CIBC (TSX:CM) is a strong dividend stock investors should certainly consider not just for passive income, but future growth as…

Read more »

edit Business accounting concept, Business man using calculator with computer laptop, budget and loan paper in office.
Tech Stocks

Forget TD Stock: 2 Tech Stocks to Buy Instead

TD remains a solid income stock but two outperforming tech stocks are better buys for their strong growth and upside…

Read more »

Question marks in a pile
Bank Stocks

Where Will Royal Bank of Canada Stock Be in 5 Years?

Royal Bank's continued focus on a strong capital position plus its acquisition of HSBC will likely ensure prosperous times ahead.

Read more »

Payday ringed on a calendar
Bank Stocks

How to Build a Bulletproof Monthly Passive-Income Portfolio With Just $10,000 and TD Stock

TD (TSX:TD) stock has been a poor performer over the last few years, but could be a big passive-income winner…

Read more »

Man considering whether to sell or buy
Bank Stocks

Is RBC Stock a Buy, Sell, or Hold?

Shares of Royal Bank of Canada have delivered game-changing returns to shareholders in the last two decades. Is RBC stock…

Read more »

Dice engraved with the words buy and sell
Bank Stocks

Is Scotiabank (BNS) Stock a Buy, Sell, or Hold?

Let's dive into whether the Bank of Nova Scotia (TSX:BNS) remains a solid buy or if it's more of a…

Read more »

Bank sign on traditional europe building facade
Bank Stocks

2 Top Bank Stocks to Buy Hand Over Fist in 2024

These two Canadian bank stocks can outshine their peers in terms of earnings growth, dividend stability, and future growth prospects.

Read more »