If you haven’t yet put your 2023 TFSA (Tax-Free Savings Account) distribution to work, I don’t blame you. At the start of last year, markets began to sink lower, with major U.S. averages eventually sinking into a bear market. Undoubtedly, those who put fresh TFSA cash to work back in 2022 are likely thinking it’s better to wait until the waters have calmed.
Indeed, it’s a bit discouraging to see the past month and a half of relief rally gains. Now, it seems like markets are a tad too hot to put new TFSA money to work. Indeed, it’s always tough to be an investor when there’s so much volatility and uncertainty.
A recession still may be up ahead. But that doesn’t mean the year-to-date gains are nothing more than an illusion. Undoubtedly, markets always get a tad too hot and need a pullback to sustain a march higher. But compared to the plunge behind the last month’s relief rally, I’d argue that there may still be money to be made for investors willing to be more selective with their next purchases.
In this piece, we’ll look at two TFSA-worthy stocks that I think can keep clawing higher from here.
Loblaw (TSX:L) stock is up around 94% from its spring 2021 lows. Undoubtedly, the perennial laggard took off in a big way, as the firm powered through the inflationary environment. The Canadian grocer wasn’t just in a spot to navigate through inflationary challenges effectively; it was in a spot to benefit.
Now, I don’t mean that Loblaw was taking advantage of a dire situation. Rather, Loblaw likely gained the upper hand over many of its peers, thanks in part to its reputation as a lower-cost grocer. Further, its private-label brands (like No Name) were a place where inflation-hit consumers could dampen the devastating blow brought forth by inflation.
Inflation is beginning to cool. However, I don’t think it’s over with yet. In the United States, a hot inflation number caused markets to retreat in the back half of last week. In Canada, the battle against inflation may be winding down, but there’s always a chance that the Bank of Canada may need to keep rates elevated for longer. Currently, markets seem to pricing in rate cuts next year. If inflation proves stubborn, rates may need to stay higher for some period longer. In any case, Loblaw is a perfect inflation fighter that can also perform well in a recession. The stock trades at 18.7 times trailing price to earnings.
Don’t look now, but Alimentation Couche-Tard (TSX:ATD) stock is at a fresh new high at $65 and change. There wasn’t much big news to propel the name higher. Earnings are still a month away (slated for March 21, 2023). In any case, I think investors are rewarding the firm for its defensive growth traits.
Even at new highs, Couche-Tard is cheap at 17.4 times trailing price to earnings. With an incredibly strong balance sheet and a knack for creating value via mergers and acquisitions, 2023 could be a year when the convenience store giant really begins to flex its wings. Even without a blockbuster deal, Couche-Tard is continuing to strengthen its financial position in a time when liquidity is of growing importance.
Finally, Couche has also proven resilient amid inflation and macro headwinds. Even as the recession nears, I don’t think Couche’s rally will falter.