The Canadian grocery scene has seen some surprising outperformers in recent years. Loblaw Companies (TSX:L) is one of them, surging more than 171% in the past five years and around 44% in the last year alone.
Undoubtedly, the price of admission may have gone way up amid inflation. With a fairly decent value proposition at some of its lower-cost grocery chains (think No Frills and Superstore), it should be no surprise as to why sales have been so impressive. The company’s affordable prices and vast selection of food brands are a major reason why it’s stood tall in an environment that’s been rather wobbly for retail.
Though inflation has died down, it’s likely that Canadian consumers will continue to feel the pains of the 2022-23 inflationary spike for many years to come.
Even if inflation were to fall a tad below the 2% mark, the price increases from recent years are not going to reverse course. Indeed, they’re here for good unless some deflationary forces are put to work. At the end of the day, periods of deflation (negative inflation rates) are quite rare. And with lots of inflationary threats looming, it’s a good idea to hope for the best but prepare for the worst regarding inflation.
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Tariff-driven inflation is a major risk that one shouldn’t discount in 2025
If imposed, tariffs could propel us right back into an inflationary world, one that may have the Bank of Canada (BoC) increasing interest rates again rather than cutting. Indeed, tariffs and inflation are real threats to one’s purchasing power.
Add the continued erosion of the value of the Canadian dollar into the equation, and it seems like inflation is a top risk that Canadians should be ready for. Undoubtedly, no Canadian wants to consider the bleak, longer-lived side effects of potential tariffs, inflation, political unknowns, and a decaying loonie to start the new year.
Today, inflation is cooled, and the TSX Index (as well as the S&P 500) is on the right footing. While inflation could stay under control in 2025 (perhaps if tariffs never actually get imposed), while the TSX Index surges even higher, we may be dealt some positive surprises this year. Either way, Loblaw is one of the names that can fare well, regardless of the climate ahead, whether it’s sunnier or rainier than expected.
Loblaw stock can help investors stay ahead of inflation
There is more than one way to invest for a potential 2025-26 resurgence in inflation. But one of the most underrated ways, at least in my opinion, is retail stocks, specifically the consumer staples that already offer consumers bang for their buck. It appears that Loblaw stock is ready for another round in the ring with inflation as it expands the No Name brand and a new line of discount stores based on the brand.
Indeed, private labels are a place to look for big savings whenever prices keep rising. With No Name goods reportedly going for up to 20% below the regular retail price, I see the private label expansion as an opportunity to help Loblaw gain even more market share.
If inflation hits harder than expected in 2025, the “ultra-discount” stores and brands could be the place to seek shelter from such a storm. All considered, Loblaw stock is a buy for the new year while it’s going for 25.6 times trailing price to earnings.
