Many TFSA investors are feeling uneasy in January 2023. The bear market of 2022 isn’t about to back down. With downbeat earnings expectations and recession chatter holding many back from putting new money into markets, it seems like a bad time to be a new investor. At the very least, stocks are a better deal than they were just a few months ago. In a few months, stocks could be even cheaper. But there’s also a chance the price of admission could go up, even as recessionary headwinds pummel corporations.
We’ve spent most of 2022 worrying about this year’s recession. Perhaps going into the summer of 2023, once the recession is in full force, markets could be looking ahead to the next great expansion! Undoubtedly, markets are forward-looking. Eventually, they’ll look forward to a post-recession sort of world. Until then, investors need not rush back into the discretionaries or tech stocks.
The recession hasn’t even begun yet, so it could take a bit of time before risk appetite skyrockets, possibly on the back of an easing Bank of Canada or Federal Reserve. With strong employment data in the books, though, don’t hold your breath for a rate pause. The Fed has made it loud and clear: expect more rate hikes. Markets may not like it, but for the longer-term health of the market and sake of lower prices, the bitter “medicine” that the Fed is forcing on the economy will not be for nothing.
TFSA investors: Embrace recessions and be ready to invest through them
It’s an investor’s job not to avoid pullbacks, but instead to invest through good and bad times. As recession strikes, we need to be ready to power through. Now, that doesn’t necessarily mean loading up on bonds or GICs, but simply taking a step back to consider investment options that we’ll feel comfortable with as the bear market enters its next innings.
If 2022 was a travesty for your TFSA, consider a grocery stock with your next purchase. Yes, they’re boring, but they led 2022 and will likely do well in 2023 if the bear has one more nasty surprise left for investors.
Currently, grocery juggernauts like Loblaw (TSX: L) stand out as attractive, even after 2022’s run. Indeed, grocers are boring and won’t surge in a risk reversal. However, they can make money in another year when gains could be hard to come by.
Remember that fortunes were made (slowly) through durable grocers over time.
Loblaw
Loblaw stock soared nearly 18% over the past year as the bear clawed away at our portfolio gains. Undoubtedly, the top grocers haven’t succumbed to high rates of inflation. Some have profited from it. Though Loblaw has done its best to help its loyal customers fight off food price hikes, it’s had to pass on some of its higher costs to keep fundamentals sound.
Undoubtedly, Loblaw has quite a bit of pricing power relative to rivals. It’s known as one of the cheapest options in the grocery space. With that, many consumers don’t second guess the low prices they’ll see at the local Superstore. With the private-label No Name and President’s Choice brands picking up traction, I do see Loblaw as a top candidate to take market share in the New Year, as more consumers march into a Loblaw-owned store in search of savings.
At 18.9 times trailing price-to-earnings, Loblaw stock is a tad pricy for a grocer. However, in a recession year, I think the premium is well-deserved and worth paying.
Bottom line
Few firms can dodge and weave past the punches of inflation better than grocers. 2023 will see more of the same. Further, I’d look for management to continue using its windfall to reward investors with buybacks and dividend hikes.
