With the broad markets rolling over a bit of a roadbump in the last quarter of the year, Canadian investors might wish to look to some of the value names that might be spared if we are, in fact, in the earlier stages of a correction or perhaps something a bit worse. Undoubtedly, there are a lot of themes that are still working as the AI and growth trade begin to show early signs of faltering. And while now might be a great time to top up the mega-cap tech plays you’ve been looking to pick up on a bit of subtle weakness, I’m not so sure if a slight single-digit percentage drop is enough to warrant getting greedy.
Though it does seem like most other retail investors are starting to get a bit more fearful, especially compared to last month, when it seemed like AI and all sorts would take the broad markets to new highs. Either way, let’s check in on some stocks that still have their momentum intact despite a sluggish November of trading.
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Fortis
First up, we have those steady shares of Fortis (TSX: FTS), which might actually continue moving higher as volatility sets in and investors start throwing in the towel on some of the market’s hottest AI growth ideas. The stock isn’t as cheap as it used to be, with the name going for just shy of 22 times trailing price to earnings (P/E).
That said, I view the defensive utility as a fair price to pay for a 3.5% yield and a stabler ride once turbulence sets in for the market’s hotter names. Believe it or not, Fortis stock has steadily beaten the market so far this year, gaining just shy of 23%. And with a 0.8% gain on Monday’s horrid trading session, I think the defensive dividend staple is starting to show its value as slightly more elevated volatility hits due to AI valuation-induced anxiety.
To many, the dumping of tech stocks from the smart money (hedge funds) only rubs more salt in the wounds of investor sentiment, in my opinion. That makes the case for rotating to value (from growth) that much stronger as we head into a nervous holiday season. As shares look to power past $74 per share (new all-time highs), I’d not be afraid to buy on strength.
Loblaw
Loblaw (TSX: L) is another name that’s soaring in the face of increased investor jitters. The exceptionally well-run grocery juggernaut just melted up past $61 per share, marking a new all-time high. With shares rocketing 1.3% on a down day for broad markets, I think the defensive grocery titan is just getting started.
The only thing that concerns me about the name is the premium valuation. Shares of the grocer go for close to 30 times trailing P/E. While I hate paying up for defensive exposure, I wouldn’t be afraid to if you think we’re in for a “lost year” in the growth trade and want to obtain a durable growth story in a more defensive corner of the market. With a low 0.43 beta and the ability to keep earnings marching higher as the economic landscape slips a bit, maybe L shares are worth paying up for at this time of year.
In my view, Loblaw is more than just a grocer; it’s the retailer with the ultimate value proposition. And for that reason, Canadian shoppers are likely to stay loyal as the times get a bit harder from here. The Loblaw ecosystem (low-cost grocery stores, Shoppers Drug Mart locations, PC Financial, and the ability to collect Optimum points for further savings) is tough to escape, especially when Canada’s economy isn’t exactly firing on all cylinders.
