TFSA Investors: This Top Stock Could Outperform, as Inflation Lingers for Longer

Loblaw (TSX:L) stock is one intriguing Canadian stock that could keep rising, even as inflation lingers into a recession year.

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Tax-Free Savings Account (TFSA) investors shouldn’t wait around for the coming recession to end (it hasn’t even started!) before putting some cash to work. There are firms out there that can continue trending higher, even as the economy slips into another period of sluggish economic growth. With various regional banks selling off viciously south of the border, it seems like we’re headed for a climate that seems to “rhyme” with both the 2000 tech bust and the 2008 Great Financial Crisis.

Indeed, many tech high flyers have crashed hard. With rates continuing to rise, banks exposed to Silicon Valley (or crypto) have begun to crumble under pressure. At this juncture, it seems like risks are mostly contained. However, memories of 2008 are never great for jolting investor confidence.

Looking ahead, TFSA investors should adopt a slow and steady approach. It’s unclear as to whether the bear market in technology names is over. The hot start to January suggests it is, but the hangover in February and March seems to be creating an environment that’s hard to make money if you have a shorter time horizon than a year.

Chasing tech and momentum got a lot of TFSA investors hurt in 2022. And over the past month, we’ve seen momentum chasers get slammed again.

Instead of taking a chance on the battered plays, I’d much rather look at value names that continued to move higher through 2022. Such recession-resilient consumer staple stocks with modest multiples may be key to thriving in what appears to be another tough year.

Loblaw: Inflation and a recession won’t derail the stock

Enter Canadian grocer Loblaw (TSX:L) which actually delivered a positive gain last year. Over the past year, shares are quite flat. And with the company making headlines for price hikes amid high inflation, TFSA investors seem to have soured on the name.

Loblaw and other Canadian grocers were grilled by Parliament over the past week over “profiteering” in a high-inflation environment. Indeed, “greedflation” has been the talk of the town of late. Though Loblaw (and others) claimed they were not taking advantage, it’s really hard to ignore the sticker shock of many Canadians who’ve felt the pinch.

Many customers have shared images of very expensive food on social media. Specifically, an image of President’s Choice specialty chicken priced at $27 per kilogram caused outrage for many.

Even if the government calls for lower prices, I don’t think they’ll be able to convince grocers to keep prices static, as the cost of everything surges. Ultimately, Loblaw has strong pricing power, and with one of the best value propositions in grocery, I expect Loblaw could be in spot to keep taking share, especially if it introduces more “price freezes” on its private-label goods.

The bottom line for TFSA investors

As inflation lingers, look for Loblaw to continue investing in the marketing of its private labels. Whether we’re talking President’s Choice or No Name, both brands are having their moment to shine. As a recession hits, I think both private labels could take it to the next level and help Loblaw drive profits further in a tough year.

At 19.7 times trailing price to earnings, TFSA investors are getting a solid inflation-resilient defensive that could help keep your portfolio strong in a recession year. The 0.06 beta implies a lack of correlation to the TSX Index.

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.

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