Despite widening cracks in the global economy, the markets are still rallying. There is little rhyme or reason behind much of the buoyancy in the markets, though. Some quality names are still on sale compared with their 2019 valuations. These names stand out from the slew of oversold stocks by dint of their wide economic moats and positive outlooks. Let’s take a closer look at two of them.
A consumer durables stock with defensive properties
Toys sometimes can fall in several consumer asset bands, but the most common are durables and discretionaries. Larger purchases, such as bicycles and outdoor doors, represent a defensive offshoot of the consumer durable asset class.
Meanwhile, educational toys, such as those aimed at early years development, could be closer to consumer staples, given their essential nature – especially in the absence of school.
Spin Master (TSX:TOY) saw a painful March, responsible for the majority of this name’s 32% year-on-year losses. Sure, the selloff affected most Canadian industries. But toys in particular were largely out of season back then. Christmas memories had faded and summer seemed an aeon away (to kids, anyway). So the timing of the March selloff could not have been worse for toy retailers.
Neither the market nor the economy present a strong thesis for buying retail stocks. However, toys represent a class of consumer durables that should outlast the pandemic. Investors eyeing Spin Master may want to add a few shares to their basket.
With summer in full swing, chances are that this bargain stock could see some improvement later in the year. Spin Master sells at half its target price, making for +50% upside potential.
The ultimate consumer staples pick
Nutrien (TSX:NTR)(NYSE:NTR) is one of those stocks that consistently crops up (no pun intended) in consumer staples lists. However, perennial good value for money and attendant 5.4% dividend yield suggest that investors are still overlooking this strongly defensive name. This would be a shame, since Nutrien commands the largest market share worldwide for potash production.
One of the strongest stocks on the TSX, Nutrien is a leading agri input investment. Nutrien sells below its book price with a P/B of just 0.82 times book, making for a bargain stock to go long on. Down 29% since this time last year, Nutrien is a value play that is likely to appreciate in the long-term. Climate change is likely to weigh increasingly on agriculture this decade, and will put a spotlight on nutrient inputs.
Dividend investors may note that Nutrien’s distribution is not currently well-covered. However, its payout ratio of 112% should come down over the next three years to a more acceptable 68%. Regardless, agri inputs are among the most defensive of safe assets. Commanding around 20% of the world potash production, Nutrien is a buy for the coming precision farming boom.
Pairing Nutrien with Spin Master could see capital gains investors clean up down the road. The addition of Nutrien packs some highly defensive passive income. At $45 and $25 per share, respectively, this is a pair of high-quality stocks too cheap to pass up.
