In this current market environment, investors may be looking to tilt their portfolios toward more defensive holdings. Such a view makes sense, given the heightened geopolitical and macroeconomic risks we’re seeing play out in the global marketplace.
For investors looking for consumer defensive stocks worth buying, the good news is that there are quite a few options available on the TSX. One of my top picks in this space for quite some time has been Loblaw (TSX:L).
Here’s more on why Loblaw is a great option for long-term investors to consider with their next $2,700 contribution.
Defensive business model
Perhaps the most important attribute Loblaw brings to the table for investors seeking defensive exposure in this market is the company’s underlying business model. As one of a few large grocery giants in Canada, Loblaw benefits from monopoly/oligopoly-like status as a leading player in this sector. Accordingly, the company has been able to earn outsized returns on equity over time, while retaining some rather impressive pricing power in the face of various headwinds of late.
The retailer’s focus on groceries and essential health products has allowed it to produce incredible cash flow stability and growth over time. Canadians have no choice but to shop at Loblaw, and as the leading Canadian grocer in this regard (and significant pushback domestically against U.S. retailers), I’d expect its already-wide moat to continue to expand over time.
Strong earnings bolster the investment thesis
Another key to Loblaw’s allure for investors is the company’s impressive fundamentals and strong balance sheet.
This past quarter, Loblaw saw its retail segment grow at a better than 4% pace, with its same-store drug retail sales growing at a 3.8% clip. This led to operating income growth of more than 5% as the company continues to pursue additional efficiency measures, and earnings grew by a whopping 9.3% indicating Loblaw has certainly made the right moves in improving its operating model over time.
Despite a challenging macroeconomic environment, Loblaw continues to outperform its peers, and there’s a reason why this stock is trading near an all-time high.
While I wouldn’t call Loblaw a value stock at a valuation of roughly 30 times earnings, there’s a reason why investors are paying up for this quality. In this market, I think taking a more defensive approach makes sense, and market participants appear to agree. Until the macro backdrop changes, this is a top stock I think is worth owning at these levels right now.
