We’ve heard a lot of chatter about the recession that could kick in as soon as 2023. Some bears may even think that it’ll strike this year. Undoubtedly, there’s a lot to worry about, with the inverted yield curve, the Russia-Ukraine war, COVID and its impact on China, mixed earnings, high inflation, and Fed rate hikes. That’s quite the list! But it’s important to remember that the markets have had the opportunity to digest all these risks already.
With the stock market down considerably to start the year, investors may wish to be a contrarian. There’s a lot of damage in tech stocks in particular. And although smart people like Warren Buffett are on a buying spree, investors must ensure there’s enough cash so that they can keep buying on weakness.
In this piece, we’ll look at two TSX stocks on the Canadian stock market that stands out to me as buys today, whether or not we’re propelled into a recession at some point over the next two years. Yes, the inverted yield curve signals a recession looming. But the indicator should not be taken as gospel!
So, without further ado, let’s have a look at two investments that should hold their own far better than your average TSX stock should Canada experience some sort of economic contraction up ahead.
Metro
Metro (TSX: MRU) is a Quebec-based grocery store chain that’s fared quite well through the past few years of headwinds. As a rare consumer staple, the firm is ready and prepared to deal with any sort of economic downturn. Further, the company has done a great job of moving through recent inflationary pressures. Even if the Fed and Bank of Canada fail to tame inflation in 2022, I think Metro will be little affected, given it can pass on costs to consumers without losing sales. That’s the beauty of being a boring consumer staple!
At this juncture, MRU stock goes for 20.2 times trailing earnings alongside a 1.6% dividend yield. The stock has had a run, up 25% over the past year. Though the stock could slip on the back of market volatility, I don’t expect shares will sag as much as the broader markets. It’s a well-run grocer and makes for a terrific holding in the face of a downturn.
Loblaw
Sticking with the grocery theme, we have Loblaw (TSX: L) — a chain that Canadians may be more familiar with. Like Metro, Loblaw has been on a tear of late, soaring over 70% in the past year to $116 and change per share. Undoubtedly, the perennial laggard has finally awakened. As the economy’s health is tested, there’s reason to believe that Loblaw can extend its gains and crush the TSX Index further.
Loblaw trades at 21.4 times trailing earnings, with a 1.3% dividend yield. It’s slightly higher than Metro, but you’ve got to pay for quality! I’m a big fan of the performance amid inflation. If anything, big chains like Loblaw may edge out smaller, pricier peers, as consumers go bargain hunting. Loblaw is a must-hold in a recession, in my opinion.
