Move Aside, Meme Stocks: This Defensive Retail Stock Could Be Better

Here’s why I think investors shouldn’t sleep on Loblaw Companies (TSX:L) right now.

| More on:
Supermarket aisle with empty green shopping cart

Image source: Getty Images

You’re reading a free article with opinions that may differ from The Motley Fool’s premium investing services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn more

In 2021, meme stocks have attracted a lot of interest from retail investors. While share prices of meme stocks have skyrocketed to incredible highs, they’ve also crashed to devastating lows. Accordingly, many investors following the crowd have suffered significant losses.

Indeed, those that ignored this noise and focused instead on high-quality retailers like Loblaw Companies (TSX:L) instead have come out ahead in most cases.

Here’s why I think Loblaw remains an intriguing pick today, relative to meme stocks.

Analysts are bullish on Loblaw

As it turns out, I’m not the only one bullish on Loblaw at these levels.

Analysts have continued to ramp up expectations for Loblaw moving forward. After surpassing its earnings expectations for Q1 2021, Loblaw’s management team has revealed that its growth target of 10-15% per share is conservative. That’s why Chris Li, an analyst at Desjardins Securities, has drastically improved his estimates for Canada’s largest grocery retailer.

Loblaw’s recently recorded earnings per share of a $1.13, trouncing the consensus projection of $0.87. According to Mr. Li’s research report, its financial services segment accounted for 40% of the outperformance. In comparison, 60% came from food and drugs.

Moreover, following the Q1 earnings, Irene Nattel, an analyst at RBC Dominion Securities, has raised her target to $96 from $94. It is believed that Loblaw’s focus on operational efficiency should allow the company to deliver EPS growth of more than 10% this year, especially with changes in senior management taking place.

Loblaw’s business model offers stability

Loblaw conducts its business through grocery retail stores, drug marts, in-store pharmacies, and more. Its low-risk defensive operations have been consistently delivering strong performances. Indeed, grocery retailers offer a lot of stability during these times.

After all, these businesses were able to carry on their operations as essential services, despite the pandemic-related restrictions. Accordingly, from a cash flow perspective, Loblaw has done quite well in comparison to its peers. The company’s generated steady returns for shareholders over this past year. In 2021 alone, Loblaw stock is up double digits at the time of writing. With inflation expectations rising, I think more upside could be on the horizon.

Bottom line

Loblaw is one of the most consistent, dividend-paying, defensive stocks on the TSX. The company’s business model makes this stock a perfect pick as a portfolio hedge in times of uncertainty. For those concerned about what the future has in store, I’d recommend considering Loblaw here.

The stock appears to be fairly priced, with some decent upside from here. However, I think there is a great deal of downside protection with this stock as well. Such protection has value for investors. Accordingly, this stock is certainly worth taking a second look at today.

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 Chris MacDonald has no position in any of the stocks mentioned.

More on Investing

edit Sale sign, value, discount

3 Cheap TSX Stocks to Buy Before July

Canadian markets have bounced back, but investors can still snag undervalued TSX stocks like Finning International Inc. (TSX:FTT).

Read more »


Is Blackline (TSX:BLN) Stock Worth Your Attention in 2022?

Blackline Safety Corp. (TSX:BLN) stock has struggled in the year-over-year period, but there are some positives to glean from its…

Read more »

stock analysis

Why I’m Buying the Dip in Andlauer (TSX:AND) Stock

Andlauer Healthcare Group Inc. (TSX:AND) stock offered exposure to two promising spaces while offering solid value in late June.

Read more »

clock time
Tech Stocks

Now’s the Time to Load Up the TFSA With These 2 Top TSX Stocks

Here are two top TSX stocks that long-term growth investors may not want to give up on, especially at these…

Read more »

data analyze research
Energy Stocks

TSX Stock Picks With Huge Potential

If you want a TSX stock that's bound for even more strong growth, these three are top picks by analysts.

Read more »

growing plant shoots on stacked coins

Market Plunge: Double Your Cash With 3 Bargain Stocks

These TSX stocks have corrected over 50%, despite their strong fundamentals, and could easily double from here.

Read more »

oil and natural gas
Energy Stocks

Can Cenovus Stock Outperform in H2 2022?

Is now the time for investors in Cenovus (TSX:CVE)(NYSE:CVE) stock to buy more, or wait out this volatility right now?

Read more »

cup of cappuccino with a sad face

The Biggest Regret a TSX Investor Can Have

Hydro One (TSX:H) is a top bond proxy to own if you're a TSX investor who's worried about a pick-up…

Read more »