2 TSX Stocks to Buy if Inflation Stays Stubbornly High

Understand the latest trends in inflation in Canada and how gas prices are affecting the economy and your wallet.

Puja Tayal

Puja Tayal has been writing for Motley Fool Canada since 2020. Her love for writing inspired her to start a college newsletter. With a Bachelors's degree in Finance and Accounting and CFA Level 1, Puja strives to transform stock discussions into breakfast table chats through her articles. A movie buff and a finance geek, Puja weaves superheroes, cartoons, and novels to tell you a story touching different aspects of investing, from portfolio and tax planning to retirement savings. Follow her on Twitter for more stories.

Published July 21, 8:00 pm EDT

| More on: LCVEXIT

Key Points

Impact of Persistent High Inflation and Strategic Stock Picks: If inflation remains high, the Bank of Canada may raise interest rates, affecting borrowing costs; stocks like Loblaw Companies and Cenovus Energy could hedge against rising inflation due to their positioning in food and energy sectors, offering a balance against declines in tech and consumer discretionary stocks.
Long-term Opportunities Amid Inflation: Use high inflation's negative impact on tech stocks as a buying opportunity for long-term growth in the tech sector, such as through the iShares S&P/TSX Capped Information Tech Idx ETF, which is down 7.7% YTD, enabling potential gains once economic conditions stabilize.

Canada’s annual inflation has been wavering alongside gasoline prices. According to data from Statistics Canada, June inflation cooled to 2.8% from 3.2% in May. The key inflation drivers were gasoline and energy prices, which rose 20.5% and 14.3%, respectively, year over year. As oil prices surge again in July amidst tensions between the United States and Iran, inflation will rise. Such macro events are beyond anyone’s control and impact business revenue and profit. Such scenarios create market uncertainty.

groceries get more expensive as inflation rises — Source: Getty Images

What happens if inflation stays stubbornly high?

The Bank of Canada is keeping a close tab on inflation and employment numbers. If inflation remains stubbornly high, it may increase interest rates and make borrowing difficult.

Those who witnessed the 2022 tech bubble saw one of the worst inflations triggered by the Russia-Ukraine war and the revenge travel boom. This time, the US-Iran war has created energy shocks, and artificial intelligence (AI) infrastructure spending has increased business debt. Wavering inflation is better than increasing inflation.

TSX stocks to buy if high inflation persists

If you expect inflation to increase, you could see immediate growth in sectors that are fueling inflation, which are gasoline, energy, and food. Stocks like Loblaw Companies (TSX:L) and Cenovus Energy (TSX:CVE) could see a sharp rally as inflation rises, hedging your portfolio downside as other sectors take a hit.

Remember, consistently high prices affect consumption and increase debt. The central bank increases interest rates to discourage borrowing and reduce the money supply in the economy. This slows growth, delays ongoing development projects funded by debt, and accelerates repayment of high-interest debt. You could see tech, real estate, infrastructure, and discretionary goods stocks fall. A sharp rise in energy and food stocks can offset dips in these stocks, balancing portfolio value.

Loblaw stock

Loblaw has the advantage of being a discount store and caters to food and pharmacy. It has been gradually increasing stores and growing its Earnings Before Interest, Taxes, Depreciation, and Amortization (EBITDA) margin. Loblaw has been in a sweet spot since the pandemic.

The market uncertainty that began in 2020 continues at different levels, from energy shocks to supply chain disruptions to tariffs to the Buy Canadian theme. These themes and uncertainties have helped a defensive stock like Loblaw outperform the market. Loblaw’s share price surged almost 230% in the last five years, outperforming the TSX Composite Index’s 75% and Walmart’s 137% rally.

Loblaw stock even surged 32% in 2022, when tech and real estate stocks fell amidst rising interest rates. This explains its hedging qualities against inflation.

Cenovus Energy

Energy stocks are natural beneficiaries of inflation as high oil and gas prices are the triggers driving up costs. Cenovus Energy is the recipient of this high cost. It is an integrated oil company that extracts, refines, transmits, and retails oil and natural gas. In 2022, Cenovus collected a higher amount for its production, which helped it reduce debt and improve operational efficiency. It has since been growing dividends by more than 10%.

Cenovus acquired its oil sands peer MEG Energy in December 2025. The 2026 oil price shocks will help it earn surplus cash flow and accelerate repayment of the debt it took for the acquisition. If inflation rises because of prolonged high energy prices, Cenovus stock price rally can help you offset weakness in other stocks.

A long-term stock to buy when inflation is high

The above stocks can hedge against inflation. A high inflation environment is not sustainable. Long-term investors can use the negative impact of high inflation on tech stocks to buy them on dips. The iShares S&P/TSX Capped Information Tech Idx ETF (TSX:XIT) slipped 26% in the first quarter and is still down 7.7% year to date amidst the risk of an interest rate hike.

Now is a good time to buy the ETF and book your position in the future growth of Canadian tech stocks. Consider investing a small amount throughout the year, as inflation could keep tech stocks’ valuations in check. The ETF will surge when the market stabilizes and economic growth takes precedence instead of inflation.