The abruptness of the coronavirus market rebound goes to show how sharp a bounce-back can be after a market crash. If you tried to time the bottom, you missed out on last week’s gains as a new bull market has theoretically formed with stocks rallying over 20% off their March lows.
If you’ve still got cash to put to work, don’t fret, as it’s not too late to do some buying, with the TSX Index still off 21% from its all-time highs.
Many of today’s bargains aren’t as good as they were last week. But depending on where you look, you may find stocks that have not participated in the broader rally and could stand to make up for lost time in a recovery while still holding their own should the markets retest the March lows over the coming weeks.
Without further ado, consider shares of Canadian Tire (TSX:CTC.A) and Aritzia (TSX:ATZ), two badly bruised retailers that are still down 46% and 39%, respectively, since the coronavirus crash kicked in on February 20.
You win, short-sellers. Those who’ve targeted the big-box retailer are now laughing their way to the bank following the recent damage brought forth by the coronavirus crisis. Canadian Tire stores have felt the impact of the rise of the self-isolation trend.
As a discretionary retailer of big-ticket long-lived goods, the company could have a rough road ahead as it looks to recover from a potentially severe recession.
It took Canadian Tire stock more than five years to recover from the Financial Crisis. While a similar L-shaped recovery may be in store for the iconic retailer after its sharp plunge, I’d argue that the steepness of the decline and the near-term impact of the pandemic could pave the way for an upside correction over the short term.
As you may know, I’ve been bearish on Canadian Tire for quite some time. I’m no fan of management’s overly generous dividend (it’s safe, but probably not the best use of excess cash given its hungry e-commerce competitors) nor its credit card business, but I am a fan of the valuation after a decline that I consider to be overextended beyond proportion.
The stock trades at 1.4 times book, putting the stock in “too cheap to ignore” territory. At these depths, there’s more than just a recession baked in here, so investors should feel content with the margin of safety to be had despite the economic, industry, and company-specific headwinds.
Before its sharp 60% peak-to-trough collapse, Aritzia was doing so well for itself. The company was firing on all cylinders, with its impressive omni-channel presence while continuing to build upon its brand equity through creative influencer marketing campaigns.
Still, investors are treating retailers like the plague after the pandemic hit. Aritzia stores were closed on March 16, and only its e-commerce platform will be a source of sales for the time being.
Although the coming quarters will be hideous, Aritzia’s longer-term growth story is likely still intact. Yet, like Canadian Tire, Aritzia is a discretionary retailer that will struggle to recover from the looming recession.
Cheques mailed out to Canadians who lost their job due to COVID-19 will be using the money wisely on necessities rather than blowing money on Aritzia’s latest fashionable articles of clothing (pajamas are the top fashion choice these days, with many consumers opting to stay at home).
While I don’t view Aritzia as a timely stock, there’s value to be had for long-term shareholders looking to position themselves for the next bull market.
Stay hungry. Stay Foolish.
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 Joey Frenette has no position in any of the stocks mentioned.