Buying on the Dip? 1 of the Best TSX Retail Stocks on the Move

Canadian Tire (TSX:CTC.A) is a retail stock that’s fallen out of favour once again, thanks to recession fears and inflation headwinds.

| More on:
A worker gives a business presentation.

Source: Getty Images

Rate hikes and recession fears have made it a difficult time to be a new investor. Indeed, it’s all too easy to take a rain check on the stock market (TSX Index or S&P 500) and go for bonds or GICs (Guaranteed Investment Certificates) instead. GICs, in particular, are free from the risk of loss, with some offering as much as 5% interest for a 12-14-month term. As the Bank of Canada (BoC) and Federal Reserve (the Fed) contemplate another few rate hikes in what could be the last of the current cycle, we may see GIC rates creep a bit higher from here.

It’s hard to pass up 4-5% rates on a GIC. Undoubtedly, investors need not risk any capital by going with them. There is an alternative (to stocks) these days. And as good as the risk-free rates are today, I think investors can still do far better with battered value stocks. Simply put, I view a lot of deep value out there after the great market selloff of 2022. While stocks have rallied nicely this year, the unloved corner of the market may still have good deals.

Spotting value in ugly corners of the stock market

Of course, you’ll need to channel your inner contrarian to take advantage of the best bargains. Dr. Michael Burry, the man made famous for The Big Short, has been a buyer of the regional bank stocks in the first quarter. As you may know, the regional banking crisis south of the border has been quite horrific. Bank failures have been atop the headlines, with some of the pain spreading to the big Canadian banks.

Burry may have a big tolerance for risk, but he’s all about unearthing deep value and getting greedy as others hit the panic button. Now, I’m not suggesting copying Burry by taking a deep dive into the regional banks. Rather, I think investors should be willing to take risks as long as the potential rewards make it worth their while.

In this piece, we’ll look at another not-so-loved corner of the market: retail. Personally, I think retail is rich with value but not quite as risky as the regional bank stocks in the states.

Canadian Tire: A buy-the-dip candidate

Canadian Tire (TSX:CTC.A) is a historic retailer whose shares have fallen on turbulent times once again. The roller-coaster ride could continue through the years, as we see how badly a recession impacts the company’s top and bottom lines. Personally, I think expectations are modest with shares going for less than 9.5 times trailing price to earnings.

Over the years, Canadian Tire stock has seen quite a bit of multiple compression. Retail is an ugly place in the face of high rate-driven economic pressures, after all. With a yield that’s also at 4.1%, Canadian Tire is more of a value and dividend play than it was over a decade ago.

Despite big upgrades to its digital capabilities, a spruced-up loyalty program, and the inclusion of exclusive-branded products, the stock just hasn’t been able to sustain a climb to 2021 highs. As a discretionary retailer, there could be a lot to lose as the economy pulls the brakes. That said, I expect Canadian Tire will find a way to fall on its feet. I think the company is in far better shape today than in the years leading out of the pandemic.

The bottom line

Consumers have been more deliberate with spending of late. As the recession rolls around, the purse strings could tighten even further. And that’s a major risk for CTC.A stock. Personally, I think such recession risks are priced in here. Canadian Tire is a wonderful retailer that will be ready to roar come the next business cycle, which may lie shortly after the expected “shallow recession” that’s to come.

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.

More on Investing

Happy family father of mother and child daughter launch a kite on nature at sunset
Dividend Stocks

Parents: Here’s How to Boost Your Monthly Income

Parents, you have enough to worry about. But if you can put aside even $40 per month, that can create…

Read more »

Technology, internet and networking, security concept
Tech Stocks

Top Cybersecurity Stocks for June 2023

Canadian investors should look to snatch up top cybersecurity stocks like Absolute Software Corp. (TSX:ABST) to start the month of…

Read more »

Various Canadian dollars in gray pants pocket
Dividend Stocks

Looking for a Reliable Retirement Income? Consider These Dividend-Paying Stocks

Investors looking to establish a reliable retirement income have no shortage of options to choose from. Here's a trio of…

Read more »

edit Person using calculator next to charts and graphs
Dividend Stocks

3 Oversold Dividend Stocks That Could Make You Rich When They Bounce Bank

Don't wait around for these oversold dividend stocks to bounce back, each certainly will, which is why now is the…

Read more »

A small flower grows out of a concrete crack.
Dividend Stocks

Down 8% Last Month, Canadian Tire Stock Is a Deal Heading Into June 2023

May wasn't a good month for the stock, but June has been different from the beginning and may present an…

Read more »

Canadian Dollars
Dividend Stocks

Need Passive Income Right Now? Turn $20,000 Into $152 Every Month

This dividend stock may be down now, but offers substantial passive income through its 9.31% dividend yield as of writing!

Read more »

Double exposure of a businessman and stairs - Business Success Concept
Dividend Stocks

Is Exchange Income Stock a Buy?

Even within an industry, some stocks might be worth considering in certain market conditions, while others may be avoided.

Read more »

online shopping
Tech Stocks

Shopify Stock Rose 22% Last Month: Is it Still a Buy in June 2023?

Shopify (TSX:SHOP) stock rose 22% in the last month but is down from 52-week highs. So, is it time to…

Read more »