The Canadian economy will surely be put to the test over the coming months, as that dreaded recession looks to make some sort of appearance. Indeed, the Bank of Canada is holding off on rate cuts for now, but with a slight dovish tilt and a handful of cuts likely in the cards for the second half of the year, I’d argue that there exists a scenario we could see the economy stay out of a recession.
Indeed, the consumer has shown slight glimmers of resilience, even amid what remains of inflation. As inflation backs down and the rate cuts finally start coming in, I’d argue that many more Canadians may begin to start feeling better about spending a bit of money on those discretionary goods that just aren’t necessary when times are a tad sluggish. And if Canada can’t avoid a downturn? I’d look for the staple stocks to really flex their muscles as the inflationary climate moves into a recessionary one.
For discount retailers like Dollarama (TSX:DOL), that means the good times could keep on coming. And for convenience retailers, including the likes of Alimentation Couche-Tard (TSX:ATD), I’d argue the rally may still be tough to stop in its tracks. Let’s have a look at each intriguing Canadian retail play to see if either is a nice fit for investors’ portfolios as we wander into the unknown.
Dollarama is a great company that’s among the best in the discount retail industry. Personally, I think it’s one of the best TSX-traded retail stocks to own for years (even decades) at a time, given its exceptional management team and its proven formula for steady growth. As the firm continues to offer Canadian consumers great deals while increasing its presence across the nation, I’d argue the stock may have further to fly in 2024, especially if Canada is dealt that mild recession.
At just shy of $100 per share (and new all-time highs), I view shares of DOL as a great defensive growth stock to hang onto. At writing, shares trade for over 30 times trailing price to earnings (P/E). Not exactly a bargain, but given its resilience and growth narrative, I’d argue the premium is worth paying up for if you seek steady appreciation over the next five years.
Alimentation Couche-Tard is an even better retail play for 2024, in my humble opinion. Not only is ATD stock much cheaper at 19.19 trailing P/E, but it has a slightly richer dividend yield, which currently sits at 0.73%.
I know; the yield is nothing to write home about if capital gains are what you seek. However, Couche-Tard stands out as a dividend-growth juggernaut. And if you hold the stock for the next 10-15 years, I envision that payout growing by leaps and bounds.
In the meantime, it’s all about growth, as management looks to drive earnings higher for the next few years via smart moves (mergers and acquisitions and organic growth initiatives). With plenty of cash on the balance sheet and a time-tested growth strategy, investors would be wise to keep the name on their radar this year.
Between DOL stock and ATD, I’d have to go with ATD stock, given its lower multiple and steady upward trajectory in recent years.