The grocery scene has been a great place to invest when the TSX Index waters really get rough. Though the TSX is just coming off with new highs hit back in May, investors should always have a game plan for when markets head south. Undoubtedly, tech stocks have been running hot, perhaps far too hot for investors to handle. And though a correction would be nothing out of the ordinary, especially in the tech scene, I wouldn’t look to time the market either way.
Remember, even the bubbliest of bubbles can go on for a long time. Nobody will know when that clock will strike midnight, and the punchbowl will be taken away. Though you can try to estimate what the time is currently, the odds are you’ll be wrong. So, that’s why it’s always a good idea to be prepared for when the moment comes, even if you’re in the belief that midnight won’t be coming around anytime soon.
When it comes to the firms that can withstand particularly nasty sell-offs, the grocers are pretty much in a class of their own. Undoubtedly, they can be relatively resilient bets when economic recessions (think hard and not soft landings) cause fear and panic to be the dominant emotion on Bay Street.
In this piece, we’ll look at two intriguing grocery stocks that I think deserve attention after their decent performance through the last few years of this inflationary environment. As inflation pulls back, the grocery plays may begin to take more of a breather. Either way, I view the grocers as great ways to build wealth not only in turbulent times but also steadily over the span of many years.
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Loblaw
Loblaw (TSX: L) is a Canadian grocery giant that’s been on the receiving end of criticism amid inflation. Many consumers are no fans of its high prices, and though the May boycott of Loblaw stores got the attention of CEO Per Bank and Galen Weston, I’m not so sure what to make of the matter, especially as inflation winds die down to normalized levels. Did Loblaw make some unpopular decisions during the affordability crisis for many consumers?
Most definitely. Is Loblaw pricing their goods more aggressively than Canadian rivals? I’m not so sure. Arguably, Loblaw’s peers have also been jacking up prices at a borderline obscene rate. Even after leaving a negative taste in consumers’ mouths with unpopular moves and frequent price hikes, I view Loblaw as having a wide moat around its business.
Boycott or not, Loblaw is still a top-tier grocery retailer that can thrive in almost every type of economic climate. With the stock up more than 130% in the last five years, a strong case can be made that L stock is the best grocery play to own.
Metro
To put it simply, Canadian grocery stocks are one of the best “all-weather” types of investments. They can do well when times are good and when they’re downright awful. Metro (TSX: MRU) stock hasn’t done as well as Loblaw in the last five years, gaining just 46% over the timespan.
With a modest 17.1 times trailing price-to-earnings (P/E) ratio, though, MRU stock is a heck of a lot cheaper than L stock, which goes for over 23 times trailing P/E. With a 1.3% dividend yield and a really low 0.14 (which entails less market risk), I view MRU stock as the perfect value play for grocery exposure. At this juncture, I like it more than Loblaw. It’s far cheaper!
