The broad basket of Canadian blue-chip stocks has been roaring higher over the past year, and while the tech sector has experienced some rumbles, you might not feel it if you’re heavy (or all-in) on TSX stocks. Of course, the U.S. stock market looks stretched and remains expensive, even though big tech went down to kick off the new year.
In any case, long-term investors may wish to stick with Canada’s bluest blue chips as they look to outperform the S&P 500 for the second straight year in what could be a lengthy rotation out of growth, tech and AI innovation, and back into the cheap dividend payers, preferably the low-beta names within sectors that have been neglected in recent years (think the utilities and consumer staple stocks, which are boring but steady in a market that’s becoming just a bit less fond of tech).
In this piece, we’ll look at one large-cap Canadian stock that I still view as cheap, even after the TSX Index soared in the ballpark of 30% in a single year.
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Loblaw is a great value and momentum play!
Enter shares of Canadian grocer Loblaw (TSX: L), a consumer staple stock that’s nearly doubled in the past year, with more than 343% (that’s more than a quadruple) gain in the last five years. Undoubtedly, Loblaw, the Canadian grocer behind such names as No Frills and Superstore, has actually crushed the broad markets while experiencing far less volatility (0.47 beta right now).
It’s like a smooth ride up, and it’s been fantastic for not only growth-minded investors but also those who want to sleep well at night. Indeed, not having to worry about whether or not AI or the tech sector at large is in a bubble makes for a far better night of rest! While Loblaw may seem like the anti-AI trade, it is worth noting that the incredibly well-run grocer is poised to benefit from the rise of AI tech.
Recently, the firm launched an app within ChatGPT that can help customers with their shopping. Undoubtedly, it’s a pretty big deal that could lead to a sales jolt. And the best part? Loblaw didn’t have to spend more than $100 billion in capital expenditures to benefit from the AI tech. It’s companies like Loblaw that can benefit from AI without having to pay absurd sums on training frontier models or hoarding GPUs that I believe are the real winners of the AI race.
Inflation (for food) is still way too hot
In any case, innovation is alive and well over at Loblaw, and with food inflation continuing to run way too hot (recently coming in at a blistering 7.3% for the month of January), I’d look for Canadians to continue flocking to the grocers that have the best deals.
Whether we’re talking about No Name brand private labels or continued share-taking from pricier, premium grocers, I view Loblaw as still in the right spot at the right time as what remains of inflation bites consumers’ wallets. Perhaps Loblaw’s tech-savvy could help it pass on more value to customers.
And, with that, improve its position further in the Canadian grocery retail market. At 21.1 times forward price to earnings, I still find Loblaw to be a bargain, even if shares are at new all-time highs. It has tailwinds going for it as well as company-specific catalysts.
