Retail stocks can be a difficult investment during a recession. Even beforehand, with everyone worried the market is about to tank, why would you invest in something that’s about to be dropped?
Honestly, that’s precisely the reason. While everyone else is looking at other companies, letting retail stocks drop further and further, it’s the perfect time to swoop in. While retail companies may not do well during this period, there are certainly a few that will continue to do just fine and come out of the recession on top.
Here are some I’d consider.
Source: Getty Images
Think long term
There are some retail stocks that have been around the block a few times — blocks that contain several recessions. One of those retail stocks is Canadian Tire (TSX:CTC.A).
Canadian Tire stock recently celebrated 100 years in Canada. From the Great Depression to the Great Recession, it’s managed to make it through. What’s more, it’s actually even managed to thrive. The company continues to see customers come to its locations, even as the market turns downwards.
The main reasons? Canadian Tire offers its own in-house products at cheaper prices. It then stocks up in bulk in its warehouses. So, it never runs out of products, and it never pays more than it has to. What’s more, the company continues to expand. Whether it’s Canadian Tire stock’s Triangle Rewards program or its e-commerce business, it continues to find ways of bringing Canadians to its doors.
Shares are down by just about 3% in the last year but up 22% year to date. Even so, it trades at a valuable 10.2 times earnings, with a dividend yield at 3.84%.
What’s doing well
Another way to look at retail stocks is to consider what’s been doing well throughout this downturn, a pandemic, and all the other junk recently. One such stock is Aritzia (TSX:ATZ). In this case, it’s definitely going to be a buy-and-wait situation.
Aritzia stock has shown time and again that it can beat out its own and analyst estimates. Despite consumers spending less, the company has seen its revenue increase 37.8% year over year during its recent third-quarter report. Net income increased 8.9%, and its adjusted earnings before interest, taxes, depreciation and amortization went up by 9.5%.
While Aritzia stock may drop during a recession, I would still buy it. It’s bound to rebound quickly out of it. Shares trade at 25.8 times earnings for now and are down 5% in the last year and 9% year to date.
Where consumers always go
No matter what, where will consumers go for products, even during a recession? We still need to eat and still have birthdays. We still live our lives, albeit on a tight budget. That is why Dollarama (TSX:DOL) is the last of the retail stocks I’d consider today.
While the other retail stocks are more a planning for after a recession, this one will help you through it. But only if you buy on a dip. Many investors have the same idea to feed into this stock that will do well even during downturns. Yet these investors go on to drop the stock on the other side.
With that in mind, wait for a dip from Dollarama stock. Shares are up 12% in the last year but just 2% year to date. So, it might be that we see more of a drop in the near future. Yet it’s certainly one I would get in on.
