This TFSA Stock Could Be a Recession Safe Haven

TFSA stocks like Metro Inc. (TSX:MRU) should be on your radar.

| More on:
A red umbrella stands higher than a crowd of black umbrellas.

Source: Getty Images

Canada’s economy faces multiple threats. Inflation is already at historic highs, while economists expect a recession and a housing market crash. Unsurprisingly, this doom and gloom has spilled over into the stock market. 

Fortunately, some stocks are holding up better than others and could serve as safe havens during this slump. Here is an excellent investment opportunity that could anchor your Tax-Free Savings Account (TFSA).

TFSA stock

Grocery giant Metro (TSX:MRU) is an ideal TFSA stock. This year, it has outperformed the broader market. Metro is up 4.5% year to date, while the TSX Index is down 8.9% over the same period. 

The outperformance stems from the fact that consumers resort to cutting back on spending during recessions. However, spending on essential commodities such as food and drugs is resistant to economic headwinds. Put simply, Metro’s sales could be sustained, despite inflation and recession. 

Consumers trading down

Like other retailers, Metro has seen some of its wholesale costs rise in recent months. However, the company is shifting its merchandise mix to meet the needs of consumers who are also shifting demand. In a recent call with analysts, Metro’s chief executive officer Eric La Flèche said consumers were “trading down” to meet their budget. That means more demand for store brand products under the Selection and Irresistibles brands.

This shift also means more foot traffic at Metro’s budget FoodBasics outlets. 

This strategic shift to meet consumer demand for lower prices has helped the company sustain sales growth. In the most recent quarter, the company posted a 2.5% year-over-year increase in sales to $2.5 billion. Meanwhile, the stock has posted a compounded annual growth rate of 14% over the past five years.

Metro boasts of an impressive track record of paying dividends which have also consistently expanded. At the moment, its dividend yield is 1.51%. Given that the company is an essential business and can pass some rising costs to consumers it remains well positioned to continue generating free cash flow to grow its dividend yield.

Valuation

While the stock is up by about 5% year to date, it still has a lot of room for growth as the broader stock market shows signs of bottoming out. While it is trading with a price-to-earnings multiple of 17. That implies an earnings yield of 5.8% — much better than most blue-chip stocks. 

This valuation seems justified for a TFSA stock that is resistant to inflationary pressures and could serve as a safe haven during a potential recession. 

Bottom line

Inflation and a potential recession loom large over Canada’s economy. Most stocks are down, but essential businesses like Metro have outperformed. The grocery store chain has managed to sustain sales growth by meeting consumers’ shifting needs. That’s what makes it an ideal TFSA stock for the second half of 2022. 

Keep an eye on this opportunity. 

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 Vishesh Raisinghani has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned.

More on Investing

A worker drinks out of a mug in an office.
Stocks for Beginners

3 Stocks to Buy Today and Hold Forever

Looking for stocks to buy today and hold forever? Here’s a trio of options that offer defensive appeal in a…

Read more »

railroad
Investing

Better Rail Buy: CN Stock or CP Shares?

CP Rail (TSX:CP)(NYSE:CP) looks way too cheap to ignore after the recent bear market turbulence.

Read more »

data analyze research
Investing

3 TSX Small Caps to Buy Right Now

Given their high-growth prospects and cheaper valuation, these three small-cap stocks look attractive.

Read more »

rail train
Dividend Stocks

3 TSX Stocks I Own and Will Buy More of If the Stock Market Crashes

These TSX stocks may be down, but don't count them out. In fact, buy up as much as you can…

Read more »

Upwards momentum
Investing

3 of the Top-Growing Stocks on Earth

Canadian investors may want to branch out and target top-growing stocks like Exxon Mobil Corp. (NYSE:XOM) in the early fall.

Read more »

A worker uses a laptop inside a restaurant.
Investing

3 of the Best Stocks to Buy After Last Week’s Selloff

After many Canadian stocks fell rapidly in price last week, here are three of the best to buy to take…

Read more »

stream movies at home
Dividend Stocks

3 TSX Stocks With High Dividend Yields

As markets continue to sell off, here are three of the best TSX dividend stocks you can buy to earn…

Read more »

A worker gives a business presentation.
Investing

3 TSX Stocks That Are Actually Beating the Market

Dependable TSX stocks like Hydro One Ltd. (TSX:H) and Loblaw Companies Ltd. (TSX:L) have beaten the TSX in a harsh…

Read more »