Canadian investors could be in for a volatile ride as we inch closer to the end of the 30-day pause of 25% tariffs. Undoubtedly, time will tell if tariffs weigh into year’s end. Either way, I wouldn’t look to time tariffs or expect any sort of bear-case scenario (think a recession). At the end of the day, such exogenous events can go either way.
And while they’ll have quite a devastating impact over the near term, it’s the extremely long-term horizon that matters most for investors looking to put new money to work in stock markets today. While it’s impossible to know what the endgame is with tariff talks, I still think investors should commit to ride out the potholes in the road ahead, even if it means having to fasten one’s seatbelt by picking up some of the lower-beta defensives.
In this piece, we’ll look at two stocks that I view as mispriced growth dynamos. So, for fans of brands that have taken off on the back of Millennial (and Gen Z) consumers, consider the following pair as they navigate a rougher economic patch ahead.
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Aritzia
First up, we have Canadian women’s clothing retailer Aritzia (TSX: ATZ), which I’ve been pounding the table on in recent months following some spectacular quarters and tremendous promise from its U.S. expansion. Though I’m no advocate for buying stocks after sudden upward spikes (shares of ATZ are up over 55% in just three months), I must say that I’d watch the name and look to do some buying on a pullback. With shares falling close to 4% during last Thursday’s session, I view a high chance of a correction in the overheated fashionable retailer.
Perhaps the biggest reason to stay upbeat on the name and its impressive organic growth profile. Jefferies, which recently started covering Aritiza, views shares as a buy at current levels. Notably, they view the “U.S. real estate growth opportunity” as “robust” and potentially underappreciated by investors.
As to whether the U.S. can help Aritzia pole-vault over long-term expectations, though, remains the big question. I think it can, especially if Canada and the U.S. can reach a friendly deal that avoids tariffs. Indeed, there’s a lot to win on both sides from steering clear of levies.
Lululemon
Lululemon (NASDAQ: LULU) is a Vancouver-based yoga wear retailer that doesn’t trade on the TSX Index. Still, it’s a Canadian gem worth buying in U.S. dollars, even at today’s relatively weak US$0.705 exchange rate. With shares recently dipping over 13% off 52-week highs, questions linger as to whether there’s more strength to be had following its recent upbeat guidance on the top and bottom lines. Indeed, management may be feeling better about the path forward, but investors seem to be ringing the register.
With so much competition in yoga wear, with the likes of Alo Yoga and Vuori jumping into the space, I share Wall Street’s subtle skepticism following the firm’s latest quarter. Still, at 26.4 times trailing price-to-earnings (P/E), you’re getting a robust brand with ample growth potential in the face of an up economy. Additionally, further product innovations from Lululemon may be able to tilt the odds back in its favour as it looks to claw back share in the yoga and athleisure scenes.
Who knows? If no further tariff threats are in the books and recession fears ease, perhaps demand for such discretionaries could heat up.
