It’s hard to avoid chatter about the coming recession that central bank rate hikes will propel us into. While I don’t expect one in Canada, given how robust energy prices have been, Canadian investors with U.S. exposure may be subject to a spike in volatility as the U.S. Federal Reserve tightens, pulling the brakes on hot economic growth, also running the risk of falling into a recession.
Elon Musk is the latest to ring the alarm bell, noting his “super-bad feeling” about the economy, while looking to cut 10% of the workforce over at his EV (electric vehicle) behemoth. It isn’t just Musk that’s worried. Jamie Dimon warned of a potential economic hurricane due to rate hikes and the Ukraine war.
Further, many other firms have either slowed on hiring or have already laid many people off. Undoubtedly, more tech layoffs could be on the horizon over the coming weeks and months, as firms come to terms with the amount of damage done to their share prices in the first half of 2022. The early signs of recession seem to have arrived. And for investors, it’s a scary time to be a buyer, especially for beginners, given a V-shaped recovery appears to be less likely this time around.
Economic storm clouds look ugly
It seems like a good time to bail. However, good investors stay invested because we know that things may not be as ugly as everybody makes them out to be. The S&P 500 plunged into a bear market before bouncing back modestly, and the TSX Index is between a full recovery and a return to a correction.
The stock market is forward looking, and right now, it seems to be staring a recession right in the face. If the downturn isn’t as bad as 2008 (it’s unlikely to be) or expected inflation comes in on the lower end, markets could be in for a relief rally, and the next bull market could be a prosperous one.
That’s why timing markets is a bad idea, even when the macro could not seem worse. Beginner investors have been through a lot. And their patience should be rewarded in due time, as long as they stay the course over the long haul.
In this piece, we’ll check out one value stock that can do well, regardless of which direction the economic winds blow. It’s these such firms that investors should reach out to if they’re feeling uneasy but are drawn to attractive valuations across the board.
Canadian Tire stock: Already priced for a recession?
Consider Canadian Tire (TSX:CTC.A), an iconic retailer that already seems priced with a looming recession in mind. The stock is down more than 18% from its highs, with a 9.1 times trailing earnings multiple. That’s incredibly cheap, given the calibre of the 100-year-old Canadian firm.
CEO Greg Hicks is a great manager, and he has what it takes to bring the firm to the next level. The company has found success with the omnichannel, offering a great line-up of exclusive brands that Canadians can’t find elsewhere.
As a trusted firm that held up in the face of the coronavirus recession, I’d argue there’s a lot to gain by giving Hicks and his team the benefit of the doubt. Yes, a consumer-centric recession doesn’t spell good things for a discretionary retailer. However, I think Canadian Tire’s dividend-growth track record and knack for quarterly beats are discounted.
With such a low bar ahead, I’d argue Canadian Tire is one of many value plays that could hold up. Its valuation is starting to get absurdly low.
