It’s the battle of the retailers in this piece as we stack up a more than 100-year-old icon in Canadian Tire (TSX: CTC.A) up against fast-rising discount retailer Dollarama (TSX: DOL).
Undoubtedly, the retail landscape has been rather bumpy, but the road higher couldn’t be more different for the two names. Indeed, despite most things costing more than a dollar, Dollarama has continued to thrive amid inflation and its continued national expansion. As macro headwinds prevail in 2025, DOL stock could be the ultimate defensive name to own if you’re looking for resilient growth. As for Canadian Tire, it’s been facing an uphill battle for years now. Despite a few rough patches, the stock remains as cheap as ever.
The big question for Canadian Tire is when the next big economic expansion will occur. With Canada facing a potential tariff-fuelled recession, consumers may be putting their wallets away on the nice-to-have goods for a while longer. Either way, I find both Canadian retailers to be solid bets for any Tax-Free Savings Account (TFSA) or non-registered account that aims to fare well over the next 10 years.
The big question we’ll tackle in this piece is whether it’s a better bet to go with the proven winner (that can keep on winning) and pay the premium or shift gears with the deep-value retailer that could have considerable upside once the economic tides are working in its favour again.
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Dollarama
Dollarama is the place to shop if you want to stick with a strict budget. With the threat of inflation on the minds of many as tariffs look to come online, perhaps a Canadian recession isn’t all too far from reality. Though such a recession could be mild, there’s a great deal of uncertainty as to how long it will last. Until tariffs go away and consumers feel good again, discount retail could continue to gain market share over all other retailers that can’t offer Canadians the absolute lowest prices.
As a recession-resilient growth company, Dollarama is quite the rare breed. And it’s one that’s worth every bit of its premium, with shares going for 36.6 times trailing price to earnings (P/E). Arguably, that multiple isn’t cheap enough, given how few retail firms can continue to grow and take share in the face of down economies. As long as Dollarama delivers on its value promise (it likely will for years to come), the shoppers will fill up their baskets.
Canadian Tire
Canadian Tire is bracing for a tariff storm, with the firm scrambling to shift gears to adapt in an environment that could see the firm change a number of suppliers. While it’s going to be a messy next few months, I think that Canadian Tire will adapt.
Recently, management noted that tariffs could pretty much “erase” economic rebound hopes it had in the back half of last year. Though time will tell how deep tariffs cut, I do think the stock has already taken on too much damage. Indeed, Canadian Tire may be a tariff loser, perhaps one of the biggest in retail.
However, at $145 and change, the stock goes for a mere 9.1 times trailing P/E to go with a 5.1% dividend yield. That’s a fat dividend to get alongside what I view as a deep-value multiple. While CTC.A has done nothing in the past five years; I think there’s too much pessimism surrounding the $8.4 billion retail juggernaut, which will be there once the good times inevitably return. Given the lower price of admission, I favour CTC.A over DOL going into March 2025.
