Retail Sector Wreck: 2 Stocks Worth Buying on the Dip

Aritzia (TSX:ATZ) and another cheap Canadian retailer to keep watch of for the long haul.

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The retail sector isn’t exactly treading water, with various low-cost retailers thriving amid today’s inflationary environment (if you can still call it that, with inflation back below the 3% mark). Indeed, if firms can offer the best prices on a wide range of necessary goods, odds are the firm behind the stock may have viewed the last three years of inflation as a tailwind of sorts.

It’s not just the discount retailers and low-cost grocers that have done well either. Various up-and-coming disruptors have also been able to fare well as they nip at the heels of rivals that were once thought of as untouchable.

Indeed, headwinds are hitting some corners of retail, while tailwinds are hitting other parts. It’s investors‘ job to position themselves in a way that they’ll be able to overcome turbulence from headwinds and be in a good spot to make the most of temporary and secular tailwinds.

In this piece, we’ll tune into two stocks that I view as more than worth buying on recent weakness. Though retail headwinds have caused their shares to be a wreck of late, I do find them to be compelling bounce-back candidates for investors looking to outpace the markets over the next two to three years.

Consider shares of Canadian Tire (TSX:CTC.A) and Aritzia (TSX:ATZ), two Canadian retail stocks in a tough spot right now but could be in a spot to surge higher once Canada’s bull market has a chance to put things into overdrive.

Canadian Tire

Canadian Tire stock has been a laggard since it peaked way back in 2021 when the economy reopened, and people flooded back to the iconic retailer for their wares (and wears). Fast forward to today, and the stock is pretty much right back to where it was all the way back in 2019, in the $140 per share range, down around 32% from its high.

The stock yields a handsome 5.1%, not too expensive, at least on a year-ahead basis, with CTC.A stock going for 11.7 times forward price-to-earnings (P/E). Though Canadian consumers haven’t been filling up their carts as much these days due to the horrendous bite of inflation, I do find Canadian Tire has taken steps to be a far better retailer.

It’s a go-to place to buy pet food now, and with various exclusive brands (Sher-Wood hockey sticks are owned by Canadian Tire now) underneath the hood, I’d argue Canadian Tire is worth buying on the way down, especially as the firm doubles down on partnerships and acquisitions to bring even more established brands to Canadian Tire stores near you.

Looking further out, I think e-commerce could be another area of growth as the firm improves its offering to be more competitive with the likes of its U.S. counterparts.

Aritzia

Aritzia stock has also been a stomach-churner for investors in recent years. As impressive as the fashions are (and the deals to be had on the discount rack), the apparel retail space is just not where you want to be with inflation gone out of control.

The good news is the worst of inflation is likely behind us. With rate cuts and retreating inflation in the cards, perhaps Canadian consumers putting off their fast fashion buys will have the means to begin picking up new attire from the Vancouver-based apparel mid-cap.

Personally, I think the U.S. expansion is a growth wild card that’s severely discounted now that the stock is back at $35 and change. With a $3.9 billion market cap and room to run, I’d argue young Canadian investors should strongly consider watching this one as a likely choppy rest of the year plays out.

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 has positions in and recommends Aritzia. The Motley Fool has a disclosure policy.

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