It’s not a secret that during an economic downturn, and indeed a recession, retail stocks don’t do well. If everyone is pinching pennies, then they aren’t using those pennies to shop ’til they drop.
However, there is definitely at least one retail stock I would consider buying on the TSX today. No, it’s not going to be one of the companies that would do well during a recession. Rather, it’s one that will do well during and far beyond a recession environment for investors.
We’ll still have to spend on something
While consumers may not be spending on frivolous things, they still will be spending on necessities. Coffee pots stop working. Camping trips instead of flying across the world this summer may happen. Then, there are the daily items we need.
That’s why when it comes to investing in a retail stock, investors should think of a diverse range of options that consumers will need to purchase. You want to identify companies that offer a wide range of products, and ideally their own makes. Why? Because those are cheaper options that consumers will tend to come back for again and again.
That’s why I would say the only retail stock I would consider on the TSX today is Canadian Tire Corporation (TSX: CTC.A).
Thinking big
I mean that literally. Canadian Tire stock is the one retail stock I would consider on the TSX today because locations are literally enormous. These are warehouses designed to store their own products. It can take on as much as possible, which means there isn’t a risk of running out of product. So, consumers know they can always come to Canadian Tire for their essentials.
Furthermore, the company thinks big in terms of diversification. There are many branches to the success of Canadian Tire stock. First, there’s the auto service department, with a large amount of Canadians choosing to go to Canadian Tire for their annual car service. There’s the real estate investment trust (REIT) as well. Instead of an outside company operating these locations, it’s Canadian Tire itself.
Furthermore, the company has diversified in terms of acquisitions and loyalty programs. Whether it’s Sports Chek or Mark’s Work Warehouse, Canadian Tire stock is there. And after ditching Canadian Tire dollars, its Triangle Rewards loyalty program has taken off. And, of course, there’s the gas stations, offering even more stable revenue flows.
More growth to come
Canadian Tire stock recently celebrated 100 years in Canada. It has been growing and changing in that time, and has more growth to come. We saw that during the pandemic when its ecommerce business thrived at curbside. And this hasn’t slowed down.
Yet, the fact this company remains focused on providing essential products at a good price is the key to its success in and out of the downturn. And that’s why I would certainly consider it while it trades at just 10.3 times earnings on the TSX today. Further, it offers a dividend yield at 3.82%. All with shares down only 3% in the last year, and up 24% year to date!
So investors wanting value that lasts shouldn’t look for retail stocks that may drop after a recession. Instead, look to stability in a retail stock like Canadian Tire.
