The retailing scene has been through its ups and downs over the past few years. As we head into 2024, with high hopes for a soft (or at least not hard) landing for the Canadian economy, there’s a good chance that the top retail stocks may be a tad on the oversold side right here.
Indeed, whenever stocks plunge, things tend to be overdone to the downside. Of course, Mr. Market can take quite a bit of time to correct his mispricing. In this piece, we’ll check out three of my favourite Canadian retail stocks that seem well equipped to deal with more turbulence going into the new year.
As rates begin to retreat from here and consumers feel a bit better about opening up their wallets, the following retail plays seem overdue for some sort of relief rally. Without further ado, let’s get right into the names.
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Canadian Tire
First up, we have iconic retailer Canadian Tire (TSX: CTC.A), which has diversified its brands rather well in recent years. Despite bringing intriguing new brand names to Canadian consumers, the company remains very much a discretionary retail play, putting it at risk of substantial losses in the face of a severe recession.
Depending on who you ask, though, 2024 may not have a horrific downturn that causes a 50% haircut across the leading retailers. Further, the stock already looks quite cheap here after delivering flat gains on the year.
With a nice 4.94% dividend yield, I’d be willing to give shares of CTC.A a nibble while they’re down and out!
Dollarama
Dollarama (TSX: DOL) is a discount retailer that’s been on an impressive multi-year run. If you own just Canadian stocks, Dollarama would be one of the names that would help your portfolio put the TSX Index to shame since the pandemic began back in 2020. In Thursday’s session, the stock slipped more than 4%. Indeed, investors didn’t seem thrilled with the company’s latest round of quarterly earnings results. A 31.4% profit pop is pretty good.
However, there’s some concern as to where consumers will go once inflation dies down, and they’re in a better spot. My guess is they’ll continue to retain that bargain-hunter mentality. After the recent slip, DOL stock goes for just 27.9 times trailing price to earnings — not a bad deal for one of the best discount retailers on the continent!
Mattel
Finally, we have toymaker Mattel (NASDAQ: MAT), the firm behind such brands as Fisher Price and Barbie. The broader toy industry has been in turmoil in recent years, and Mattel has not been able to steer clear of the headwinds.
Going into the holidays, expectations seem quite muted for the toy firms. Personally, I think Mattel stock stands out as a potential deep-value play while it’s still down 28% from its 2022 peak levels. Sure, the Barbie movie tailwind seems to be fading. However, I’d not discount the longer-term potential of its legendary toy brands.
The $6.7 billion company is the best in its breed and could be in a spot to surprise for its holiday-containing quarter as consumers begin to heal from the heavy hit of inflation. In 2024, as inflation continues backing off, look for Mattel and the peer group to experience more relief.
