If you’re a young TFSA (Tax-Free Savings Account) investor, you should be willing to be brave in the face of turbulent market conditions. At the end of the day, you want stock markets to retreat, so you can deploy new capital at below-average prices. Indeed, it seems counterintuitive. Regardless, new investors should take advantage of their enhanced agility relative to older investors (think the Baby Boomers) to dodge and weave past the subtle jabs thrown by Mr. Market.
Without further ado, we’ll look at two consumer stocks that I think could help enhance your long-term returns, as retail pessimism turns into optimism again. Sure, everyone is chatting about the implications of a Canadian recession. Though a recession can hurt earnings growth moving forward, one must remember that macro news that most others around you are aware of isn’t all that useful. Indeed, a recession-induced sales and earnings hit already may be baked into the share prices of various companies at these levels.
Could it be that expectations are a tad more dire than what could pan out once the recession eventually does come? That’s the contrarian call. And one that I believe is worth making at this moment in time.
It’s never easy to be a contrarian. It can, at times, be very scary and definitely lonely. Regardless, I think the potential rewards of going against the grain are significant.
Consider Sleep Country Canada (TSX: ZZZ) and Canadian Tire (TSX: CTC.A), two worthy retailers that may be ready to skate out of the penalty box.
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Sleep Country Canada
Mattress and sleep product retailer Sleep Country has been up against it in recent years. On a mixed Monday for markets, ZZZ stock took a shot straight to the chin, plunging 4.6% on the day. Indeed, it’s been ugly for the retailer amid hard macro conditions. The company’s latest earnings results (Q2), which hit last week, did not impress. Same-store sales growth fell by around 10.9%. Indeed, you can’t pin this tough quarter on Sleep Country.
Big-ticket discretionary goods are just not in high demand right now. Not with a recession to come. Fortunately, I think the fear is overblown. The company is making strides in the Canadian sleep market, with the acquisition of Casper Sleep’s Canadian operations in a deal worth US$20.6 million.
When the time comes for consumers to buy mattresses, Sleep Country will be there. For now, shares go for 8.5 times trailing price to earnings, which is stupidly low. The dividend yield of 3.75% is also impressive.
Canadian Tire
Canadian Tire is another retailer that recently plunged viciously, sliding over 16% from its 52-week highs. Several big-name analysts were forced to downgrade the stock following some pretty muted second-quarter results. In any case, I view the dip as buyable if you’re bullish on a consumer turnaround for 2024.
The stock is so cheap at 10.7 times trailing price to earnings, and with an exclusive partnership between Sher-Wood (a Canadian Tire brand) and this year’s top NHL draft pick Connor Bedard, I think the company is playing its tough hand to the best of its ability. With a 4.4% yield, I view CTC.A stock as a contrarian opportunity for the bravest of investors.
