Consumer staples stocks could be a great place for investors to seek shelter in before a potential recession hits the Canadian economy. With shares of convenience retail firm Alimentation Couche-Tard (TSX: ATD) and grocery Empire Company Limited (TSX: EMP.A) trading at modest price-to-earnings (P/E) multiples at the time of writing, I view both as worthy additions to any long-term portfolio that aims to beat the TSX Index over the next 10 years and beyond.
Undoubtedly, consumer staple stocks don’t get a lot of love these days, as recession risks in the U.S. begin to fall. Still, I don’t think Canada may be able to escape recessionary territory over the next 18 months.
Of course, we probably should have fallen to a recession by now, according to last year’s market worries. And though it remains very difficult to pinpoint when the next economic downturn will happen, it’s never a bad idea as an investor to be prepared for when stocks fall into a slump, as they did back in 2022.
Let’s have a closer look at Couche-Tard and Empire to see which is the better bet to consider as we head into a potentially turbulent finish to the year.
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Alimentation Couche-Tard
Alimentation Couche-Tard is an absolute market crusher, with yet another year of impressive gains. While the TSX Index rose by a meagre 3% over the past year, shares of ATD have blasted off, rocketing more than 22% over the timespan. Can the Quebec-based global convenience store consolidator keep up the pace? I think it can, as shares look to keep making higher highs, even in the face of broader consumer and economic headwinds.
It’s quite rare to come across a consumer staple that’s capable of steady defensive earnings growth. As the excellent managers put money to work in the right places, I expect Couche-Tard’s earnings to keep rising and powering the stock. Indeed, not too many stocks can rise by double-digit percentage points in any given year without seeing their multiples expand by a great deal.
If real fundamentals are what you seek, and not just hype surrounding some hot trend, Alimentation Couche-Tard is the stock to own for decades. I continue to view it as the anti-tech stock to help keep your portfolio above water should the 2023 tech rally come to a plunging halt.
Empire Company Limited
Empire Company is a Canadian grocer behind such names as Safeway and Sobeys. Over the past year, the stock has underwhelmed and underperformed the TSX Index. Over the timespan, shares are down around 9%. Despite a lack of action for more than four years, the stock remains an intriguing, under-the-radar bargain at 13.14 times trailing P/E.
With a 2.1% dividend yield and the ability to sail through a recession without getting rocked too hard, I find shares to be more than worth pursuing for those looking to play defence.
The better buy: ATD or EMP.A shares?
Despite the hot momentum, I have to prefer Couche-Tard. I love its proven growth strategy and expect the firm to keep earnings growth going strong, as it opportunistically takes advantage of deals in the global convenience retail scene. Exceptional managers, a rock-solid balance sheet, and a steady upward earnings trajectory. What’s not to love?
