As we head into a new year that’s sure to be full of uncertainty and surprises, value investors may wish to rotate back to the relatively discounted plays that may be able to shrug off a particularly hard landing for the Canadian economy. Though a soft landing is possible, even likely, investors must always be prepared to invest through a wide range of different scenarios.
Tech stocks had a chance to get hot again this year. But if the rally broadens out, I’d look for the year’s relative laggards, like Loblaw (TSX:L), which is pretty much flat year to date, and Telus (TSX:T), down 8.6% year to date, to get a bit of a lift.
Now, I’m not suggesting you throw in the towel on the mega-cap tech stocks that are flirting with new highs. Rather, investors may wish to consider some of the neglected domestic value stocks with their next big purchase instead of doubling down on overheated stocks that could be in for a more turbulent ride in 2024.
Indeed, shares of Loblaw and Telus are pretty boring, especially in the age of generative artificial intelligence (AI). And while you’re unlikely to post jaw-dropping gains over the year ahead with such names, I do find the risk/reward to be compelling.
Loblaw is a Canadian grocer that received heat for food price hikes. As disinflation strikes, the days of getting sticker shock at the local grocery store may become a thing of the past. If inflation was good for Loblaw, disinflation represents a new can of worms, but one that’s not necessarily bad for Loblaw. As the winds of recession begin to chill investors‘ nerves, L stock may be able to continue moving higher again after a two-year stall.
Management has done a great job of offering Canadians good value for their money during hard times. With a modest 19.1 times trailing price-to-earnings, a robust 1.47% dividend yield, and a near-zero (0.09 at writing) beta, which entails an absurdly low correlation to the market, I view L stock as one of the cheapest ways to defend your portfolio against a particularly hard-hitting recession.
Moreover, Loblaw’s customer base could prove loyal, even if the economy gets running at full speed again. Owners of President’s Choice credit cards will find it’s just too rewarding to shop at the local superstore over the alternatives.
The telecom scene has been a painful place to invest. Fortunately, 2024 could bring relief, as rates settle (or sag), while the firm looks to bring on new subscribers to its impressive wireless network.
The main draw to Telus has to be its track record of top-notch customer service and knack for delighting customers with strong wireless signals. With Telus trailing mobile satellite connectivity with TerreStar, it seems like the telecom is ready for what could be the next chapter in wireless tech. Indeed, the tech could allow the firm to extend coverage to the far reaches of the country at a minimal cost.
Telus still has its tech-savvy. And things could be looking up in 2024, as the stock looks to recover ground lost in 2023 and 2022. The 6.25% dividend yield is for investors to collect while they wait for Telus to turn some sort of corner.
Better buy: L or T stock?
Telus stock is the better buy, primarily for the larger dividend yield. Additionally, the rush of Canadian newcomers could be an unforeseen catalyst that could spark a rebound over the near- to medium-term.