With a recession just waiting around the corner, it seems like a pretty bad time to go hunting for a market bargain in the discretionary retail space. Indeed, Canadian Tire (TSX:CTC.A) tends to be a volatile mover when the economy begins to sag. Despite this, investors may wish to give the name a second look, as a lot of the fear of what’s to come may already be more than factored in at this moment in time.
There are always risks in buying any firm as it heads into a recession. In Canada, the recession could hit in the second half, at least according to some pundits. A recession always implies pain, but how much pain is already baked in is the real question that DIY investors should be asking themselves.
Canadian Tire has been through recessions, and its stock has been a painful hold through such environments. When times get tough, there just isn’t as much excess disposable income to splurge on garden furnishings or other nice-to-have goods. In recent years, though, Canadian Tire has become less discretionary in nature. Though, it still remains far from a retailer of recession-resilient necessities.
Pet food and party supply push slowly and steadily made it more than a discretionary retailer
Getting into pet food, for example, was a bit strange for the more than 100-year-old retailer with roots in the sale of auto parts. The expansion into such unorthodox product categories could pay off once the next recession works its way through the top- and bottom-line.
Canadian Tire is quickly becoming a go-to place to purchase pet food, party supplies, and kitchen appliances. With an ever-improving omnichannel presence, I do view the brick-and-mortar retail kingpin as a firm that’s done a pretty good job of adapting to the times while maintaining the width of its moat.
Some consumers prefer to shop online, but a huge sum likely finds it more convenient to head on over to the local Canadian Tire (odds are you’re quite close to a location if you live in a major Canadian city) to check out the wares and test the waters before committing to a purchase.
Canadian Tire has made it through a horrid pandemic. And it’s more than likely to make it through another recession, even if it’s a tad longer-lasting than the 2020 coronavirus recession.
The company has all the tools it needs to improve its business. I suspect it will continue to focus on the long haul by catering to local consumer needs.
Whether we’re talking the inclusion or acquisition of new consumer brands (think Sher-Wood hockey sticks or Petco pet food), a sprucing up of the in-store customer experience (have you been to the local Sport Chek lately? It’s pretty high-tech nowadays!), beefing up the e-commerce platform, or improving its loyalty program, Canadian Tire has a lot of room for growth as it looks to maintain its reputation among Canadian consumers.
Canadian Tire stock: What about value?
At writing, CTC.A stock goes for just north of 10.3 times trailing price-to-earnings — that’s cheap. The dividend yields a nice 3.8%. Though the competitive landscape could change with time, I think it’s clear that Canadian Tire has the home ice advantage over many American retail rivals that have unsuccessfully pushed north in recent years.
