Alimentation Couche-Tard Stock or Empire Company?

Empire Company Limited (TSX:EMP.A) and another retail play could hold their own, even if a recession comes to Canada next year.

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Consumer staples stocks could be a great place for investors to seek shelter in before a potential recession hits the Canadian economy. With shares of convenience retail firm Alimentation Couche-Tard (TSX:ATD) and grocery Empire Company Limited (TSX:EMP.A) trading at modest price-to-earnings (P/E) multiples at the time of writing, I view both as worthy additions to any long-term portfolio that aims to beat the TSX Index over the next 10 years and beyond.

Undoubtedly, consumer staple stocks don’t get a lot of love these days, as recession risks in the U.S. begin to fall. Still, I don’t think Canada may be able to escape recessionary territory over the next 18 months.

Of course, we probably should have fallen to a recession by now, according to last year’s market worries. And though it remains very difficult to pinpoint when the next economic downturn will happen, it’s never a bad idea as an investor to be prepared for when stocks fall into a slump, as they did back in 2022.

Let’s have a closer look at Couche-Tard and Empire to see which is the better bet to consider as we head into a potentially turbulent finish to the year.

Alimentation Couche-Tard

Alimentation Couche-Tard is an absolute market crusher, with yet another year of impressive gains. While the TSX Index rose by a meagre 3% over the past year, shares of ATD have blasted off, rocketing more than 22% over the timespan. Can the Quebec-based global convenience store consolidator keep up the pace? I think it can, as shares look to keep making higher highs, even in the face of broader consumer and economic headwinds.

It’s quite rare to come across a consumer staple that’s capable of steady defensive earnings growth. As the excellent managers put money to work in the right places, I expect Couche-Tard’s earnings to keep rising and powering the stock. Indeed, not too many stocks can rise by double-digit percentage points in any given year without seeing their multiples expand by a great deal.

If real fundamentals are what you seek, and not just hype surrounding some hot trend, Alimentation Couche-Tard is the stock to own for decades. I continue to view it as the anti-tech stock to help keep your portfolio above water should the 2023 tech rally come to a plunging halt.

Empire Company Limited

Empire Company is a Canadian grocer behind such names as Safeway and Sobeys. Over the past year, the stock has underwhelmed and underperformed the TSX Index. Over the timespan, shares are down around 9%. Despite a lack of action for more than four years, the stock remains an intriguing, under-the-radar bargain at 13.14 times trailing P/E.

With a 2.1% dividend yield and the ability to sail through a recession without getting rocked too hard, I find shares to be more than worth pursuing for those looking to play defence.

The better buy: ATD or EMP.A shares?

Despite the hot momentum, I have to prefer Couche-Tard. I love its proven growth strategy and expect the firm to keep earnings growth going strong, as it opportunistically takes advantage of deals in the global convenience retail scene. Exceptional managers, a rock-solid balance sheet, and a steady upward earnings trajectory. What’s not to love?

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 Joey Frenette has positions in Alimentation Couche-Tard. The Motley Fool has positions in and recommends Alimentation Couche-Tard. The Motley Fool has a disclosure policy.

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