TFSA Investors: Approach These 2 Luxury Brand Stocks With Caution!

Find out why investors will want to be careful buying stock in luxury brand Canada Goose Holdings Inc (TSX:GOOS)(NYSE:GOOS) as we head into the back half of 2019.

| More on:

Fears continue to persist among investors that our economy may be at risk of heading into a recession owing to a confluence of risks that have arisen over the past eight months, including ongoing trade negotiations, unrest in the Middle East, uncertainty concerning the eventual Brexit, and, more recently, heightened political tensions in Hong Kong.

That doesn’t mean there’s reason to panic; there are still plenty of high-quality companies out there that are available at attractive prices.

Truth be told, Foolish investors ought to be using this latest spell of market uncertainty to be averaging down and investing for the long term.

Yet with markets around the world mostly flat over the past year or so, there is some chance that the stocks of luxury brand companies could be at more risk.

Higher-income-earning households tend to get a greater share of their incomes from passive investments like the stock market, meaning that when the stock market isn’t generating its typical 10% or more annual returns, these companies tend to be at higher risk of seeing a downturn in their sales.

Canada Goose Holdings (TSX:GOOS)(NYSE:GOOS) is one of those types of luxury brands that investors may want to be careful with over the next couple of months.

GOOS caught fire with the smash-hit popularity of its down-filled winter parkas and has thus far jumped all over the opportunity, expanding into new international markets while building a more diverse product line, including more seasonally appropriate outerwear for the warmer months.

Yet despite delivering 59.1% sales growth in the first quarter, it’s still not profitable, losing $29.4 million during the quarter, or $0.27 per basic and diluted share.

That’s a larger net loss than what the company had posted a year ago.

While management is still reaffirming the full-year guidance that it laid out at the start of the year, that’s going to make the back half of 2019 especially important. If the economy ends up going into a recession, and consumer spending takes a hit as a result, that could prove disastrous for GOOS and the company’s shareholders.

Another company that could find itself in trouble later this year is Italian luxury car manufacturer Ferrari, which was spun off from Fiat Chrysler Automobiles in January 2016.

For my money, I tend to favour investments in more defensively natured companies, like, for example, Alimentation Couche-Tard, the owner of the Circle K and Couche-Tard chain of convenience stores and gas bars, which has quietly become Canada’s second-largest company by reported revenues.

Or, for those in search of current streams of dividend income, shares of a company like Suncor Energy or even Brookfield Renewable Partners could be a good bet.

Suncor, currently the largest operator within the Canadian oil sands, has a 4.46% annual dividend following a 16.6% hike earlier this year.

Meanwhile, BEP is not bad in its own right, currently yielding 5.33% with plans to raise its payout by mid- to high single digits over each of the next couple of years.

Foolish bottom line

Hopefully, GOOS and its management team will be able to weather the threat of this storm that may be looming on the horizon.

But until we get more clarity on what the next couple of months are going to look like, I think I’d lean towards something offering a little more stability for the time being.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Jason Phillips has no position in any of the stocks mentioned. Couche-Tard is a recommendation of Stock Advisor Canada. Brookfield Renewable is a recommendation of Dividend Investor Canada.

More on Investing

A data center engineer works on a laptop at a server farm.
Tech Stocks

3 No-Brainer Data Centre Stocks to Buy With $500 Right Now

Data centres are going to be a huge growth opportunity in the next decade. And these are the top buys.

Read more »

Paper Canadian currency of various denominations
Bank Stocks

1 Magnificent Canadian Dividend Stock Down 28% to Buy and Hold for Decades

This top Canadian dividend stock is underperforming its large peers this year, but a turnaround could be on the horizon.

Read more »

TFSA (Tax-Free Savings Account) on wooden blocks and Canadian one hundred dollar bills.
Dividend Stocks

Where to Invest Your $7,000 TFSA Contribution

The TFSA is attractive for investors who want to generate tax-free passive income.

Read more »

The TFSA is a powerful savings vehicle for Canadians who are saving for retirement.
Dividend Stocks

TFSA Investors: 3 Dividend Stocks Worth Holding Forever

These TSX stocks have the potential to grow their dividends over the next decade, making them top investments for TFSA…

Read more »

hand stacks coins
Investing

Secure a Wealthy Future With These 3 Canadian Stocks

These Canadian stocks have the potential to appreciate substantially over time and may also enhance returns through dividend payments.

Read more »

Tractor spraying a field of wheat
Dividend Stocks

Is Nutrien Stock a Buy for its Dividend Yield?

Nutrien is down more than 50% form the 2022 highs. Is NTR stock now oversold?

Read more »

analyze data
Investing

3 Blue-Chip Stocks Every Canadian Should Own

These blue-chip stocks are backed by large-cap companies with well-established businesses, solid fundamentals, and a growing earnings base.

Read more »

dividends grow over time
Stocks for Beginners

The Smartest Growth Stock to Buy With $2,000 Right Now

Do you have $2,000 to invest for the long term? These three TSX stocks have and will continue to deliver…

Read more »