Editor’s note: A previous version of this article misstated Canadian Tire’s price relative to its intrinsic value. It is currently about 20% below intrinsic value, not 10% above.
It is no surprise to Canadian investors that, at the moment, two of the popular sectors for investment are technology and convenience. So, if you are looking for some much-needed diversification in your portfolio, finding the right retail stocks can be a great way to start.
Luckily, there are multiple options for quality retail stocks. These stocks have also proved to be recession resistant and can be of great value when it comes to fighting inflation. Let’s dive into what investors should focus on when it comes to these names.
Canadian Tire
Canadian Tire (TSX: CTC.A) is among the most well-known retailers in Canada. Apart from the company’s core retail segment, Canadian Tire also operates a financial services division as well as CT REIT. The company’s brands include Canadian Tire, Party City, PartSource and Gas+. Founded in 1922, Canadian Tire offers a variety of products for Canadians in areas such as living, gaming, repair, automotive, seasonal, and gardening.
Interestingly, Canadian Tire and Microsoft (NASDAQ: MSFT) have entered a seven-year strategic retail partnership using Microsoft Azure to modernize infrastructure and improve customer experience. Microsoft provides expertise, upskilling and digital technologies that support CTC’s growth, innovation, and operational efficiency.
The partnership aims to improve digital capabilities, support innovation and talent development, and jointly innovate using artificial intelligence and machine learning for optimized operations and a better customer experience.
In terms of stock valuation, Canadian Tire is currently trading for about 20% less than its intrinsic value of $171.39. Given its volatility, there may be opportunities for lower prices in the future, giving potential investors a chance to buy at an even better value.
Alimentation Couche-Tard
A global leader in convenience and mobility and operating in 25 countries, Couche-Tard (TSX: ATD) boasts more than 14,400 convenience stores, including 10,800 offering road fuel via its network of gas stations.
Recognized under the Couche-Tard and Circle K banners, it is a major independent operator of convenience stores in the U.S. and dominates retail and road fuel in Canada, Scandinavia, the Baltics, and Ireland. It also has a significant presence in Poland, the Hong Kong Special Administrative Region of China, and employs approximately 128,000 people worldwide.
With an annual earnings per share growth rate of 15% over three years, Couche-Tard maintained stable EBIT margins while achieving a 14% increase in revenue to $72 billion.
Despite being valued at $70 billion, insiders hold a significant stake worth US$7.4 billion, aligning their actions with shareholder interests. The company’s stock is up 10% over the past three months, and its consistent dividend payments over a decade demonstrate its commitment to profit sharing.
Analyst estimates suggest a stable future payout ratio of 13% over the next three years.
Bottom line
These two stocks are great choices if you want to add retail stocks with good long-term growth potential to your portfolio. Both of them have been maintaining stable dividend payouts for years and are ideal for long-term investors.
