2 Retail Stocks to Cash In on an Economic Rebound

Canadian Tire (TSX:CTC.A) and other retailer look deep with value after past-year woes.

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As the Canadian economy rolls through some choppy waters, questions linger as to how long the rough times will last and what could lie on the other side of a potential economic contraction. At this pace, it seems like the recession has already arrived in Canada. Still, there may be nothing to fear but fear itself as Canadian firms look to navigate through the year’s uncertainties.

The good news is that inflation is on the descent, with the latest round of numbers coming in quite cool. Whether the Bank of Canada (Canada’s central bank) chooses to begin cutting rates at a faster pace than the Federal Reserve in the U.S. remains the big question. Either way, I think investors should be a tad more optimistic about the next two to three years when it comes to the top retail plays.

In this piece, we’ll have a closer look at two well-run but underrated Canadian retailers that I believe are trading at slight discounts going into March. Though it could take a while before Mr. Market rewards the following names with a sustained rally higher, I’m a fan of the risk/reward scenario, and value investors should be, too.

Let’s dig into the two Canadian retail plays to see which, if either, is worth pursuing after the past few years of intense volatility.

Canadian Tire

Canadian Tire (TSX:CTC.A) is a historic Canadian retailer that’s evolved in a big way over the past decade. The retailer offers a slew of quality brands, and its exclusive brand portfolio seems to be getting bigger, thanks in part to acquisitions and strategic partnerships. When it comes to retail, trusted brands are key. Combined with a robust loyalty program in Triangle rewards, I’d argue that Canadian Tire is one of the most underrated retail plays in Canada today.

The company’s e-commerce platform has improved quite a bit in recent years. Still, brick-and-mortar is where Canadian Tire’s biggest advantage over peers comes into play. With a strong omnichannel platform, Canadian Tire can make a sale on whichever platform its customers see fit.

Once the Canadian economy comes roaring back, I’d argue that it’s Canadian Tire’s brick-and-mortar business that could do more heavy lifting as demand for larger, big-ticket items looks to make an upward move. Indeed, patio furniture and gardening items are best bought in a store, perhaps with the help of a Canadian Tire employee. Either way, I wouldn’t count Canadian Tire stock out while its yield (5.1%) is so rich. The stock’s in a rut, but I still think it’s a great value for what you’re getting.

Yes, Canadian Tire stock has been flat in the last five years. But as inflation comes to pass, it’s Canadian Tire stock that I think could be in line to be pumped. No puns intended.

PetValu Holdings

PetValu Holdings (TSX:PET) is another intriguing retail play for investors looking for more of an all-weather type of play. At $30 and change, the stock goes for over 26.2 times trailing price to earnings.

Still, with newfound momentum since the depths of last fall and a nice 1.27% dividend yield, I’d argue the mid-cap ($2.2 billion market cap) has a considerable amount of runway as the humanization of pets trends looks to kick into high gear once Canada’s economy is back to full speed, and pet owners look to splurge a bit more on their pets.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Joey Frenette has no position in any of the stocks mentioned. The Motley Fool recommends Pet Valu. The Motley Fool has a disclosure policy.

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