These TSX Winners Should Keep Running in 2023

Consider Dollarama (TSX:DOL) and another cheap defensive stock to power gains going into 2023

| More on:
Hands holding trophy cup on sky background

Image source: Getty Images

The economy seems to be on the cusp of a 2023 recession. That has many Canadian investors worried about how much more pain their portfolios will be in for in the new year. Undoubtedly, this year has been a mild correction for the TSX Index, which is down just shy of 10% from its all-time high hit just a year ago. The magnitude isn’t as noteworthy, given the Canadian market has been held up by strength in energy stocks.

South of the border, the pain has been more pronounced, with the S&P 500 off just shy of 18% from its high. Though the peak-to-trough damage of around 26% is in the rear-view, the bears think such a level will be tested at some point down the road, as we move closer to the dreaded economic downturn.

It seems like a losing cause to be an aggressive buyer for stocks here. Rallies can’t seem to sustain themselves in bear markets. The market-wide sentiment is just in the gutter right now, with many investors punching their tickets to defensives and risk-free securities to reduce any further downside.

Like it or not, stocks are less risky than they were a year ago

Despite the downbeat mood, there’s reason for investor optimism. Stocks are a better value today than they were a year ago! Further, 2023 could be a year full of surprises. Both bullish and bearish surprises are possible, as stocks attempt to find new footing after one of the longest bear markets in recent memory.

There’s still money to be made in the new year. Even as the masses dump risky equities for higher-rate bonds, young investors have a lot of reasons to stay the course with stocks.

Recent TSX winners could carry over their success into the new year. Firms like Dollarama (TSX:DOL) and Metro (TSX:MRU) are just two top performers that can help power gains that could put most other investments to shame.

Dollarama

Dollarama is a growth-driven discount retailer that’s up more than 25% year to date, thanks in part to macro factors that helped propel sales. High inflation and a financially challenged consumer have helped Dollarama take share in the Canadian retail scene. Though prices have climbed in response to inflation, it’s Dollarama’s high price certainty that’s kept consumers coming back.

Simply put, it’s easier to stick with a budget when shopping at Dollarama than at your local grocery store. As we move into 2023, I expect more of the same. Inflation will linger, and as the economy tests a recession, Dollarama’s strongest tailwinds may still be up ahead.

The stock trades at a hefty premium at just shy of 32 times trailing price-to-earnings ratio. Such a multiple reflects good times in 2023. I think there’s a good chance that Dollarama may be worth an even higher multiple, given the wonderful management and unique defensive tailwinds.

Metro

Metro is a grocery retailer that’s up around 16% year to date. Indeed, many grocers have been slammed by various pundits for taking advantage of consumers amid inflation. Despite the criticism, Metro noted its gross profit margins are flat year over year.

In any case, Metro seems to be more willing than its rivals to put customers over near-term profits. By doing so, Metro’s brand strength and market dominance could last well after this inflation storm is over.

The stock trades at 22.1 times trailing price-to-earnings ratio and has a 1.42% dividend yield. That’s a fair price to pay for a company that likely won’t be slowed by a recession.

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 Joey Frenette has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

More on Investing

edit Businessman using calculator next to laptop
Dividend Stocks

1 Oversold Dividend Stock (With a 8% Yield) I’m Buying Right Now

Real estate investment trusts Northwest Healthcare offers investors a tasty dividend yield of almost 8%.

Read more »

Engineers walk through a facility.
Metals and Mining Stocks

Why Cameco Stock Rose 22% in January 2023: Should You Buy Now?

Cameco (TSX:CCO) stock may be up right now, but how long can that last if uranium proves to be a…

Read more »

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

2 Recession-Resistant Stocks to Buy for Steady Gains in 2023

Investors worried about a recession can look to buy utility stocks such as Hydro One and Waste Connections right now.

Read more »

People walk into a dark underground mine.
Metals and Mining Stocks

2 Canadian Mining Stocks Worth a Dig in February 2023

These two Canadian mining stocks are among the best options for long-term investors looking to add some defensiveness right now.

Read more »

calculate and analyze stock
Stocks for Beginners

The Top 3 Most Shorted Stocks in Canada Today

These TSX stocks may be up now, but short-sellers are betting they're about to tumble in the next few weeks.

Read more »

tsx today
Metals and Mining Stocks

TSX Today: What to Watch for in Stocks on Wednesday, February 1

The Fed’s interest rate decision and other important economic releases may keep TSX index highly volatile today.

Read more »

A shopper makes purchases from an online store.
Tech Stocks

Better Buy: Shopify Stock or Amazon?

Let's see which e-commerce stock is a better buy between Shopify and Amazon in 2023 and beyond.

Read more »

Growth from coins
Stocks for Beginners

Got $5,000? These 2 Growth Stocks Are Smart Buys

Are you looking for some smart buys for your portfolio? Here are two great options to buy now while you…

Read more »