Millennial investors should be focused on building wealth over the course of decades, not just months. Undoubtedly, tech endured a brutal fall from grace last year, as rate hikes from the Federal Reserve and Bank of Canada caused investors to ditch pricy tech stocks that are a bit lacking in profits.
Amid the latest U.S. credit downgrade from Fitch, rates could be in a spot to move even higher over the coming weeks and months.
Indeed, higher rates seem to be acting as gravity on tech stocks. And with valuations stretched following the last few quarters of rebound, prudent investors may wish to keep it simple with profitable growth stocks that don’t depend on multiple expansion as a source of rally fuel.
In this piece, we’ll check out two low-tech discretionary retail stocks that can grow earnings at a reasonable rate over time once the recession passes. Without further ado, consider shares of iconic discretionary retailer Canadian Tire (TSX:CTC.A) and Spin Master (TSX:TOY).
Canadian Tire
Canadian Tire stock is sitting down just 16% from its all-time highs of $207 and change hit back in 2021. Undoubtedly, the iconic Canadian retailer stands to see discretionary sales sag in the face of a recession. Still, recession odds have been falling. And though Canada may still be in for a modest slowdown over the next 18 months, I’d argue that Canadian Tire stock is already priced with headwinds in mind.
In that regard, it may not take a lot to get shares of CTC.A back past the $200-per-share mark, especially if a mild recession doesn’t take as big a dent out of sales. And, of course, if no recession materializes, Canadian Tire could be in for a substantial correction to the upside, as consumers may not take long to go after big-ticket purchases again.
At writing, the stock is cheap at 11.83 times trailing price to earnings, with its 3.91% dividend yield.
Spin Master
Up next, we have toy firm Spin Master, which trades at $36 and change per share. Undoubtedly, the stock is in a rut after it reported an earnings drop in its latest second quarter. Despite the headwind-hit quarter, management was confident enough to stand by its original outlook for the full year.
With the holiday season up ahead, I think now is a bad time to throw in the towel on Spin Master stock. The second quarter may have been unremarkable, but as the firm enters a period of seasonal strength and low expectations, the stage may be set for a small relief rally.
Indeed, TOY stock is quite a choppy ride, with a 1.89 beta, indicating more correlation relative to the broader markets. At 13.76 times trailing price to earnings, Spin Master is worth a spin if you’re looking to play the strength of the consumer.
The Foolish bottom line
Discretionary stocks are in a rut right now amid a challenged consumer base. Still, with modest valuations and room to run in a post-recession environment, I consider both stocks to be deep-value names that could find themselves in a good spot when the consumer is ready to spend again!
Do be warned, though, as both stocks could be a choppier ride than the TSX!
