2 Cheap Retail Stocks to Buy Now

The holiday season sale and the cold weather could be a driver for near-term outperformance in these cheap retail stocks.

| More on:
Lady holding mobile phone and shopping bags

Image sources: Getty Images.

The holiday season sale and the cold weather could be drivers for near-term outperformance in these cheap retail stocks.

A top Canadian retailer to buy

Canadian Tire (TSX:CTC.A) is an iconic Canadian retailer with a number of brands under its umbrella. Its brands include Canadian Tire, Mark’s, Party City, SportChek, Hockey Experts, Sports Experts, and Atmosphere. Its e-commerce sales are also doing well.

The retailer stock has enjoyed highly stable earnings throughout the last two decades, through two recessions and a pandemic. It is a Canadian Dividend Aristocrat with a dividend-growth streak of 10 years. Last month, it just increased its dividend by 10.6%. Its three-year dividend-growth rate is 7.8%, while its five-year dividend-growth rate is 14.9%.

At $180 and change per share, the quality retailer offers a decent yield of 2.9% on a sustainable payout ratio of roughly 30%. Currently, the analyst consensus price target suggests an upside potential of about 25% over the next 12 months.

A retailer growth stock

Canada Goose (TSX:GOOS)(NYSE:GOOS) looks like a buying opportunity after correcting about 27% from its high in November. It’s trading at levels similar to when the following analyst commented on the luxury apparel growth stock. At writing, GOOS stock trades at $47.52 per share.

Brian Madden commented about the growth stock on BNN back in August on a day when the stock was battered down by about 13% after releasing its earnings results. At the time, GOOS traded at $48 and change per share.

“The [earnings] results look good to us. This is seasonally the low point in their calendar cycle. They sell mostly winter parkas. So their excelling period is calendar Q3 and Q4. This is always a loss-making quarter. It was again this year. It lost $0.45 [per share], but importantly that was a smaller loss than the analyst community had been forecasting.

The big driver for this stock is sales and sales growth because it is a growth stock. The sales were better than expected. So, it ticks both of those boxes in our view. I think what investors are quibbling about is there were some degradation of gross margin compared to what the Street was forecasting.

…Sometimes stocks are priced for beating expectations on every metric and they didn’t on gross margin. But the bigger picture is what’s the bottom line — a smaller than expected loss. We’re pretty comfortable with the quarter and the outlook. They reiterated their fiscal year gross margin outlook for this year. So, they’re going to recoup it in the later quarters.

The longer-term secular growth story remains intact. The brand is strong. Overseas sales, particularly in China, are gangbusters. We don’t think the valuation is unduly demanding compared to some of the luxury apparel companies out there. What we saw is this stock can get shaken out of weak hands from time to time. We saw the same thing happen in Q1 results back in May with the stock down 9%. It bottomed on that day and clawed its way back. This is a buying opportunity in our view. “

Brian Madden, senior vice president and portfolio manager, at Goodreid Investment Counsel

Brian Madden was right about the seasonal strength of the company, as around the time Canada Goose released its fiscal Q2 results in November, the growth stock rallied 41% over three weeks to the $65-per-share level. Currently, the analyst consensus price target suggests an upside potential of 25% over the next 12 months.

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.

The Motley Fool has no position in any of the stocks mentioned. Fool contributor Kay Ng has no position in any of the stocks mentioned.

More on Dividend Stocks

Two seniors float in a pool.
Dividend Stocks

TFSA: How to Earn $1,890 in Annual Tax-Free Income

Plunk these investments into your TFSA to earn passive income and avoid the taxman.

Read more »

Engineers walk through a facility.
Dividend Stocks

1 TSX Stock I Wouldn’t Touch With a 10-Foot Pole

AtkinsRéalis (TSX:ATRL) is one TSX stock I'd never invest in.

Read more »

edit Woman in skates works on laptop
Dividend Stocks

3 No-Brainer Stocks to Buy Under $30

These three stocks all offer a huge deal for investors looking for dividends, as well as growth that will last.

Read more »

You Should Know This
Dividend Stocks

How to Convert a $300 Monthly Investment Into $338 in Monthly Income

If you want a certain amount in monthly passive income, invest a similar amount today and leave the rest to…

Read more »

Increasing yield
Dividend Stocks

3 Income Stocks With Big Yields to Consider in April 2024

If you haven’t yet made your March investments, here are three income stocks to buy the dip and lock in…

Read more »

Senior Man Sitting On Sofa At Home With Pet Labrador Dog
Dividend Stocks

RRSP Investors: Don’t Miss Out on This Contribution Hack!

This hack has so many benefits for you -- not just when you put it in your RRSP but for…

Read more »

A red umbrella stands higher than a crowd of black umbrellas.
Dividend Stocks

Passive Income: 2 Safe Dividend Stocks to Own for the Next 10 Years

Dividend stocks such as Manulife and Fortis can help you generate a stable and recurring passive-income stream.

Read more »

Young woman sat at laptop by a window
Dividend Stocks

3 Dividend Stocks Everyone Should Own for the Long Haul

For investors looking for top-tier dividend stocks to buy and hold for the long term, here are three of my…

Read more »