If you’ve got an extra $1,000 you’ve been meaning to invest but haven’t gotten around to it due to all the volatility we’ve had, now seems like a great time to check out some of TSX stocks that are down and out. They won’t be stuck in a bear market (that’s a 20% fall from peak to trough) forever. Heck, they may already be off to the races with a relief rally that stretches into next year.
Indeed, 2023 is looking like a recession year. Rate hikes may be the tool that inflicts a bit of economic pain. Though there’s no telling how much pain we’ll have to endure, I’d argue that markets have already priced in a lot of the pain. I’d argue that a recession isn’t even a guarantee, given we’re in good hands with the Bank of Canada and U.S. Federal Reserve, who want the best of both worlds (strong employment and tame inflation).
A soft landing may prove tough, but I’d argue that it’s the likeliest scenario, given commodity price depreciation and the supply glut that could be in the cards. If anything, strong disinflationary pressures could be what powers the next leg of the market rally.
At this juncture, I’m a fan of Dollarama (TSX: DOL) and TD Bank (TSX: TD)(NYSE: TD).
Dollarama
Dollarama stock is a great defensive Canadian stock that’s worth every penny of its premium multiple, as we face economic uncertainties. At just shy of $80 per share, the discount retailer’s stock trades at 34.3 times trailing price to earnings (P/E). That’s the highest it’s been in quite a while. Behind the multiple expansion has been some remarkable numbers and resilience in the face of inflation. Further, cash-strapped consumers have flocked to Dollarama to save a few bucks. The environment has allowed Dollarama to take share from pricier rivals in the retail space — a trend that could continue over the next 18 months.
Looking ahead, Dollarama faces greater expectations. Still, management is more than capable of crushing estimates, as it continues to find ways to bolster margins while providing next-level value for shoppers. Dollarama’s strong purchasing power has helped it make the most of a bad macro situation.
As recession strikes, don’t expect Dollarama to fall as hard or as fast as the broader TSX Index. It’s well equipped to thrive in a downturn.
TD Bank
TD Bank is a banking behemoth that I’ve praised ad nauseam of late. The bank is making big deals and it’s not hesitated to put its foot on the gas. With First Horizons and Cowen in the bag, TD Bank could grow its earnings by a much quicker rate. The recession will weigh heavily, but expect TD to walk away as one of the bigger winners from this downturn if it gains approval for its two U.S.-based takeovers.
While I like all of the Big Six Canadian banks right here, TD is a standout as one of the best banks for your buck. It’s the acquisitions that could make a huge difference over the next 10 years and beyond.
