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My Top Stock for September

When it comes to Canadian icons, nothing is more iconic than Canadian Tire (TSX:CTC.A). It was founded in 1922 by the Billes Brothers, and since then it expanded across Canada.

Its subsidiaries include Sport Chek, Mark’s, PartSource, and Helly Hansen, just to name a few. At the end of fiscal 2018, Canadian Tire reported revenues of $14 billion, which is an all-time high.

Canadian Tire is my top stock for September due to its diversification and solid net income.

Diversification

The company is diversified in more ways than one. The store itself sells hardware, sports, leisure, automotive, and home products. This department store approach to its retail presence allows Canadian Tire to appeal to different types of consumers such as contractors and DIY customers.

Its distinctly Canadian identity also means it has a competitive advantage to Home Depot, which is a leader in the home improvement industry. Further to its Canadian roots, Canadian Tire is well-known for carrying products other retailers don’t.

For example, it would be normal for a customer to walk into a Canadian Tire looking for a new tennis racket or a new tent, which are both items you wouldn’t find at a Home Depot. This combination of diverse products makes Canadian Tire unique.

The company is also diversified at the corporate level with subsidiaries such as Sport Chek, PartSource, and Helly Hansen. Sport Chek is a sports-centric retailer in Canada, and it sells sports equipment and clothing for sports ranging from table tennis to hockey.

PartSource is a leader in the automotive parts and accessories industry with a focus on customers who fix their own vehicles. Finally, Helly Hansen is a European outerwear company founded in Norway. It targets people who work on the ocean and in the mountains. Its outerwear is known for being durable and well made.

Solid net income

Canadian Tire has consistently been profitable with net income above $600 million in each of the past five years. Although this number should be higher due to revenues increasing from $12.4 billion in fiscal 2014 to $14 billion in fiscal 2018, its accumulated net income is $3.3 billion, which is impressive.

Net income is driven by an increasing operating income, which increased from $1 billion in fiscal 2014 to $1.27 billion in fiscal 2018. This is an important metric because income from operations indicates how well the company is able to generate profits from its main business.

In fiscal 2018, the company incurred other income expense of $50 million. Excluding this $50 million, net income would be $742 million which represents five straight years of net income growth. This should be exciting news for shareholders, as the price of a stock is related to the performance of the company and increasing net income is positive.

Bottom line

Canadian Tire is a unique company in more ways than one. In addition to stocking a diverse selection of products, it is also the parent company of Sport Chek, PartSource, and Helly Hansen, which operate in very different industries.

Its net income has increased every year since fiscal 2014, which indicates that it does a good job in growing the bottom line. Further to this, its operating income has also been growing every year, which means its main line of business is doing well.

Overall, Canadian Tire is my top stock pick for September for these reasons.

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Fool contributor Chen Liu has no position in any of the stocks mentioned. The Motley Fool has the following options: short February 2020 $205 calls on Home Depot and long January 2021 $120 calls on Home Depot.

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