One sector that bears watching heading into 2024 is consumer discretionary. Market analysts say companies that produce and sell non-essential goods and services are volatile and sensitive to economic changes. As of Dec. 1, 2023, four of TSX’s 11 primary sectors are in negative territory.
Surprisingly, consumer discretionary (+7.48%) is not one among them and is even the third-best performing sector year to date. Moreover, it outperforms the consumer staples sector (+2.4%). If you have the appetite to invest in the sector, three names with varying sizes or market capitalizations are the top buys today.
Large cap
Dollarama (TSX:DOL) stands out because of its defensive nature. The $28.2 billion company is a dollar store retail chain operator in Canada and Latin America. Despite the coronavirus breakout, runaway inflation, and rising interest rates, this value retailer’s net income increased yearly since fiscal 2020.
At $99.42 per share, current investors enjoy a 25.94% year-to-date gain on top of the modest 0.27% dividend. Long-time shareholders recession-proof their portfolios with Dollarama. DOL’s overall return in ten years is a respectable 607.63%, representing a compound annual growth rate (CAGR) of 21.61%.
In the first half of fiscal 2024 (six months that ended July 30, 2023), sales and net earnings grew 20.1% and 25.5% year over year to $2.75 billion and $425.63 million. Management said cost increases impact the business, but the multiple price point product offering enables Dollarama to react to and offset them, at least partially.
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Mid-cap
Gildan Activewear (TSX:GIL) displays stability amid massive headwinds. In the third quarter (Q3) of fiscal 2023 (three months that ended Oct. 1, 2023), net sales increased 2.3% to US$870 million versus Q3 fiscal 2022, while net earnings declined 16.7% year over year to US$127.4 million. Notably, free cash flow reached US$264.6 million compared to -US$7.4 million a year ago.
Nonetheless, at $50.12 per share, the stock is up 38.45% year to date and pays a decent 2.03% dividend. The $8.63 billion company manufactures everyday basic apparel, and the reach and customer base are global.
According to its president and chief executive officer (CEO), Glenn J. Chamandy, Gildan’s competitive position remains very strong in a challenging environment due to its industry-leading vertically integrated manufacturing platform. The group of retailers sells Gildan products to global lifestyle brand companies in physical stores and e-commerce platforms.
Small cap
MTY Food Group (TSX:MTY) deserves serious attention, notwithstanding the stock’s underperformance (-5.04% year to date). The current share price of $53.31 is also a good entry point, while the 1.89% dividend can compensate for the temporary weakness.
The $1.3 billion company is a franchisor and operator of multiple restaurant concepts globally. In Q3 fiscal 2023 (three months that ended Aug. 31, 2023), revenue and net income rose 73.7% and 73.3% to $298 million and $38.9 million versus Q3 fiscal 2023.
Its CEO, Eric Lefebvre, said MTY’s dual growth strategy bore fruits during the quarter. He noted a 44% year-over-year increase in normalized adjusted EBITDA to $72.9 million. He added that the company continues to deliver profitable growth with exceptional predictability, despite a mixed economic environment, higher interest rates, inflationary pressure, and customers’ heightened price sensitivity.
Top and good choices
Because of its size and scale, Dollarama is the top choice in the consumer discretionary sector. However, the businesses of Gildan Activewear and MTY Food remain bull-strong against massive headwinds.
