With the TSX at all-time highs, it might feel threatening to enter the market at this point. While this is an understandable feeling, I would remind investors to focus on the long term. And to keep making good decisions that are based on facts and not emotions. It’s a tough prescription to follow, but one has to simply remember that investing is a long-term game – just like our RRSPs. Therefore, try not to get too caught up in short-term volatility and noise.
So, at this point I will also say that I do share a reluctance to go all in on the market. But there are always good opportunities to be had, in every market, and at all times. Right now, considering the valuation of the TSX, I suggest sticking with defensive names that have lower downside risk if and when valuations correct and/or macro-economic risks come to fruition.
The two stocks I’ll be adding to my RRSP are both defensive. This means that they are minimally affected by the economic environment. Additionally, they have strong balance sheets, strong return profiles, and healthy growth profiles.
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CCL Industries
The first stock I’d like to discuss is CCL Industries Inc. (TSX: CCL.B). CCL is a diversified, global company that’s primarily involved in producing labels and materials for decorative, instructional, and security applications. The company is diversified with respect to its global footprint, as well as the industries it serves.
And that is my first point. The very make-up of CCL screams defensive. Yes, it might be somewhat boring for those of us who are captivated by the potential of artificial intelligence. But it does the job of rewarding investors consistently and over time. As you can see from the price graph below, CCL’s stock price has performed quite well over the last 10 years. In fact, it has almost doubled and, similar to the TSX, CCL is also currently trading at all-time highs.
CCL has a strong track record of creating value through acquisitions, expanding its market share, and keeping operations efficient. In the company’s latest quarter, sales increased 6.3% to $2 billion and earnings per share (EPS) increased 11% to $1.21. This was driven by a 3.7% increase in organic growth and acquisitions.
Loblaw
Loblaw Companies Ltd. (TSX: L) is another great RRSP stock that’s also trading at all-time highs. And for good reason. Loblaw’s brand is well known and well-trusted. As such, consumers are responding well to the company’s strategy in the food and pharmacy businesses.
In the food business, Loblaw is boosting its sales and market share by expanding on its discount offerings. In today’s uncertain macroeconomic environment, consumers are responding very well to this. Also, Loblaw is increasing its multicultural food offerings. These strategies are effectively resulting in increased market share for Loblaw. In its latest quarter, adjusted EPS increased 11.3% to $0.69.
While Loblaw has also been negatively affected by tariffs, it too, continues to adjust and thrive. In fact, the increased cost for US items has sparked a Made in Canada movement that has benefitted the company and the Canadian economy for that matter.
Another bright spot to the Loblaw story is Shoppers Drugmart. Shoppers is the leading Canadian pharmacy, with strong growth trends as pharmacies take on certain primary care functions. This has proven to be beneficial to Shoppers, as this has driven demand for healthcare services and prescriptions.
The bottom line
In closing, I’d like to circle back on valuation and point out that although both of these stocks are trading at all -time highs, their valuations are reasonable. Loblaw stock trades at 23 times next year’s expected earnings, and CCL stock trades at 17 times. Very reasonable given the predictability and relative security of their earnings. Therefore, I’m comfortable adding these defensive stocks to my RRSP.
