Volatility season is here, but investors shouldn’t be too quick to bail on TSX stocks, especially if valuations really start to come in on U.S.-China trade fears. Indeed, Canadian investors might not need to do much of anything as stocks wander over some tougher terrain.
In this piece, we’ll look at two names that I wouldn’t look to stand in the way of, even if the market is overdue for a swift correction to end what’s been one of the best years for the TSX Index (especially relative to the S&P 500) in a number of years.
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Spin Master
Spin Master (TSX:TOY) is a mid-cap toymaker behind such brands as Paw Patrol, Etch-a-Sketch, and more. With an impressive digital business that could be more resilient as the consumer faces challenges going into the new year, I view the $1.9 billion firm as oversold and undervalued.
At the time of writing, shares trade at 16.2 times trailing price to earnings (P/E), which strikes me as too cheap, given the portfolio of impressive brands and the strong state of the balance sheet that could open up the window to more merger and acquisition opportunities in the new year. With shares down nearly 50% in the past two years, I think it’s time to step in with a contrarian position, even though the pain could continue over the medium term as consumer-facing challenges persist and tariff headwinds linger.
On the plus side, there’s a nice 2.6% dividend yield and the potential for a positive surprise come the holiday season, which is right up ahead. Indeed, expectations are muted going into the holidays, but that’s a good thing for a firm that many investors have already turned against. If you’re a fan of the stacked portfolio of toy brands, the solid digital strategy, and the ability to navigate tariff unknowns, I’m inclined to view TOY stock as one of the most compelling mid-caps this fall.
Canadian Tire
Canadian Tire (TSX:CTC.A) is another mid-cap ($9.5 billion market cap) firm with a decent (and growing) dividend whose fate is closely tied to the consumer. Indeed, expectations pretty much got reset after the August disappointment. With shares up 11% so far this year, though, I still think the name is on the road to recovery, even as consumers become more selective with how they spend on discretionary goods.
Indeed, the “buy Canadian” mentality hasn’t been booming by all too much (at least not as much as I originally expected), but if tariff threats mount (and there’s a possibility they do going into the new year), I suspect one of Canada’s most obvious “buy Canadian” retailers could win business away from some of its non-domestic competitors.
Indeed, the legendary retailer has made it incredibly easy to buy domestically. And while shares are nowhere near out of the woods going into year’s end, I remain a fan of the price of admission. At 11.6 times trailing P/E, CTC.A, and with a 4.2% dividend yield, the retailer stands out as a great way to get paid handsomely to wait for a consumer-driven comeback.
