This season’s quarterly earnings have started quite rocky, with numbers ranging from somewhat decent to downright abysmal. Undoubtedly, all eyes were on the mega-cap tech stocks on Thursday, and they missed the mark, plunging viciously in the after-hours. Indeed, such names are the leaders of this market, and without them going into year’s end, the door could reopen for another pullback toward year-end.
Whether the pullback exceeds the 5% one endured in September and October remains anyone’s guess. Regardless, playing defence with some of the neglected Canadian stocks with low multiples seems like a pretty good idea. Just maybe the many bearish pundits who forecasted a 10% correction will get one instead of a so-called Santa rally.
Time to play defence with Canadian stocks?
So, if you’ve got an extra $2,000, it may be time to start nibbling on the many defensive plays that seem better able to hold their value come the next market-wide pullback, whether it be 10% or 20%. Consider North West Company (TSX:NWC) and Alimentation Couche-Tard (TSX:ATD.B), two blue-chip defensives that seem to be trading at hefty discounts going into year’s end. Given their low betas and historically-modest valuations, both names are prepared for a broader market correction.
Alimentation Couche-Tard
Global convenience retail company Couche Tard has been rather uneventful in 2021. The pursuit of Carrefour led to a negative reaction in the stock earlier this year. The proposed deal was declined almost immediately, yet the climb back dragged on.
Although Couche-Tard has started making smaller-scale acquisitions, the firm still has a considerable amount of dry powder on its balance sheet, and investors are beginning to get impatient. The company can make a huge splash with a massive acquisition in the c-store space, the grocery scene, or it can pick up its pace with smaller M&A moves.
Given suspect valuations in today’s COVID-plagued market, I think Couche is likeliest to pursue smaller bite-sized deals. Although investors want a mega c-store deal, I believe smaller c-store deals with a chance of a big grocery splash to the scale of Carrefour can be expected over the next three to five years.
In any case, Couche stock is stuck in a rut, but its earnings will ultimately apply upward pressure on the stock with time. As a consumer staple, the firm is less likely to be impacted by a severe drawdown in consumer spending. At 15.4 times earnings, ATD.B stock is too cheap to ignore for value investors.
North West Company
Sticking with the theme of staples, we have a lesser-known retailer in North West. The company serves remote communities and rural areas where there’s not as much in the way of competition. It’s not a very lucrative niche, but it’s one that North West has done very well in.
Indeed, the stock has been quite a choppy ride over the past five years, but if you caught the name on a dip, the swollen dividend yield was likely to keep your portfolio lesser correlated to the broader markets. After falling into a 10% correction, NWC stock trades at 11.1 times earnings alongside a 4.5% yield.
While shares of the Canadian grocery and retail company won’t make you rich, the markets could well turn a corner going into 2022.
