Despite the rising cost of borrowing money and rampant inflation, Canadian consumer confidence has held up better than expected. According to the latest data from IPSOS polling, Canadian consumer confidence was 49.54 in May 2023. That’s within striking distance of the average rate of 52.3 between 2010 and 2023.
It’s also significantly higher than the 35 level reached at the peak of the pandemic in 2020. This could be because the unemployment rate is still low (5.2%) and savings from the pandemic era are still floating around the economy.
This is why investors should have consumer stocks on their radar for June 2023 and beyond. Here are the top picks for the months ahead.
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Dollarama
Discount retailers are always well positioned, regardless of the economic cycle. Everyone loves a good deal! That’s why Canada’s largest discount retailer, Dollarama (TSX: DOL), has expanded so rapidly over the past decade.
The company has ambitious growth plans for the years ahead, too. Management expects to push the network from 1500 locations today to roughly 2,000 by 2031. Meanwhile, revenue is expanding at an accelerated pace this year as inflation pushes more consumers to consider discount options.
Comparable store sales grew 17.1% in the most recent quarter, while net earnings per share expanded 28.6% over the same period. At this pace, the company could easily double within five years or so. For now, the stock trades at a relatively modest 29 times earnings per share.
Keep an eye on this consumer powerhouse.
Loblaw
No other retailer in Canada has pricing power comparable to Loblaw (TSX: L). Over the past year, the company has raised prices to keep up with inflation, making it clear that the enterprise has tremendous pricing power. That pricing power is reflected in the earnings reports.
Loblaw delivered $12.9 billion in revenue in its most recent quarter. Sales were up 6% from the previous year during this period. Diluted earnings per share, meanwhile, was up 14% over the same period — far greater than peak inflation last year.
Patient investors got some of these rewards, too. The company’s management raised dividends 10% from $0.405 per common share to $0.446 this quarter. Now, the stock offers a relatively modest 1.5% dividend yield.
Simply put, Loblaw was the ultimate inflation hedge, which is why investors should keep an eye on it, as the inflation battle rages on in 2023.
Premium Brands
Premium Brands Holdings (TSX: PBH) isn’t on the radar of most investors. However, this specialty food manufacturer could be another attractive consumer play in 2023.
Premium stock has done better than other retailers this year. It’s up 20.4% year to date, which is higher than retailers like Loblaw (-2.96%) and the S&P/TSX Composite Index (3.14%). Premium also offers a better dividend yield of 3.07%.
Last year, the company registered sales of $6 billion — 22.3% higher than the previous year. Net earnings, meanwhile, were up 20.6%. In 2023, the management team believes earnings before interest, taxes, depreciation, and amortization could hit $600 million. Meanwhile, the company’s market cap is $4.5 billion, which implies a price-to-EBITDA ratio of 7.5.
Keep an eye on this undervalued recession-resistant stock.
