Canadian consumer stocks aren’t just great for solid long-term total returns. They can weather all sorts of storms that could rock most of the other “risk-on” holdings in your portfolio. Indeed, it’s easy to lose sight of why the consumer staples plays are so essential to hold.
Though many of them have underperformed relative to the tech scene (the AI scene has been the source of huge gains lately), I do think that now is as good a time as any to pick up a few of them before the economy has a chance to show a bit of fragility. Indeed, the stock market has been off to the races this year, likely fuelled by hope that we’ll be in for no hard landing for the economy.
Heck, it seems like many folks are already thinking we’ve avoided any landing at all (a no-landing scenario), let alone a soft one. Either way, the enthusiasm is almost palpable as investors look to deploy new capital in markets with the assumption that the battle against high inflation has been won and that no severe economic downturn will strike as a result of past rate hikes.
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More Bank of Canada rate cuts are likely on the way. That’s bullish for the TSX!
Indeed, it’s a good feeling to tune into the Federal Reserve these days, knowing that we’ll hear commentary on rate cuts rather than rate hikes. With the focus now on interest rate cuts, the market may very well have what it takes to keep on smashing through the upside price targets of various Wall Street market strategists. Indeed, it’s hard to remember when things have been this bullish for markets since the days of the post-pandemic reopening.
It’s times like these, though, when you may wish to check in on your TFSA or RRSPs sector allocation. The last thing you want is for your portfolio to fall out of balance with overexposure to some of the more volatile corners of the market.
In this piece, we’ll check in on a consumer stock that not only looks cheap but is ready to thrive, regardless of where the TSX Index closes the year.
Loblaw
Grocery retailer Loblaw (TSX:L) is the type of consumer staple that investors should strive to own if they’ve found their portfolios are getting a tad light on the “all-weather” defensive types of names. Remember, just because you’re playing the defensives does not mean you have to settle for a lack of total returns. In fact, some of the top consumer staple plays have been a source of TSX-crushing gains in recent years. At writing, L stock is up an impressive 54% in the past year. And with no signs of slowing down, I view the well-run grocer as a top pick for investors seeking more of an all-weather play to ride out the rest of the year.
The stock’s a tad on the expensive side at 26.8 times trailing price-to-earnings (P/E). However, given how well the company has fared amid inflation and management’s dedication to offering the lowest prices possible (the new line of No Name grocery stores offer competitive prices), I view Loblaw as a firm that can continue taking market share, not just from rival grocers but potentially from other low-cost retailers (think dollar stores).
Given this, the lofty multiple seems more than warranted. Loblaw seems to be a share-taker, and until it clocks in a surprisingly lousy quarter, I think defensive investors should keep holding the name.
