Stocks in the consumer staples sector generally derive predictable cash flows across market cycles as they are recession-resistant. The demand for essentials remains robust over time, making these companies top investments when markets turn volatile.
Investors are currently wrestling with high interest rates, inflation, and the threat of an upcoming recession. So, it makes sense to identify quality consumer staples stocks to diversify your equity portfolio and lower overall risk.
Keeping this in mind, let’s see which between Alimentation Couche-Tard (TSX: ATD) and Empire Company (TSX: EMP.A) is a better buy today.
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The bull case for ATD stock
Valued at a market cap of $62 billion, ATD stock is a TSX giant that has already generated massive wealth for long-term investors. It has surged 572% in the last 10 years and a whopping 5,600% since the end of June 2003, easily dwarfing broader-market returns.
The company operates and licenses convenience stores in North America, Asia, and Europe. It also operates stores under the Circle K banner in several other global markets.
Alimentation Couche-Tard has a coast-to-coast presence in Canada and is present in 47 of 50 states in the U.S. In the last 10 years, the retail and gas station chain has expanded EBITDA (earnings before interest, tax, depreciation, and amortization) at an annual rate of 20%, which is exceptional for a retail company.
With more than 14,000 stores in 24 countries, ATD serves nine million customers each day. Its wide economic moat, combined with its geographic and product mix, has allowed ATD to outpace its peers by a wide margin in the last two decades.
Despite its outsized gains, ATD stock is priced at 16.6 times forward earnings, which is very cheap. The TSX stock also trades at an 18% discount to consensus price target estimates right now.
Alimentation Couche-Tard emphasized convenience store sales grew by 5% during the dot-com bubble and 8% during the financial crash, making it a popular stock to buy in 2023. The retailer’s broad footprint and global brand provides ATD with significant scale and buying power. Moreover, it aims to enter other retail markets, such as EV charging and cannabis, further diversifying the revenue base.
The bull case for Empire stock
Empire Co is involved in the food retailing business and operates through its subsidiary Sobeys. With more than 1,600 stores in 10 Canadian provinces, its retail banners include Sobeys, FreshCo, Foodland, and many others.
The company has almost doubled sales from $16.2 billion in fiscal 2012 (ended in April) to $30.5 billion in fiscal 2023. Its adjusted EBITDA has grown from $856 million to over $2.3 billion in the past decade.
Despite an inflationary environment, Empire stock has expanded adjusted earnings at an annual rate of 18.5% in the last five years. Analysts expect adjusted earnings to rise from $2.80 per share in fiscal 2023 to $3.33 per share in fiscal 2025.
Empire Co is among the cheapest stocks on the TSX and trades at 11.7 times forward earnings and 0.3 times forward sales.
The Foolish takeaway
I believe Alimentation-Couche Tard is a better buy right now due to its leadership position in several retail markets and focus on expansion.
