It’s been a hot start to November for broader markets. Though valuations may have gotten quite rich south of the border, I still view plenty of value plays (perhaps deep-value plays) here on the TSX Index.
Undoubtedly, the Canadian dollar has been in a bit of a funk of late, trading slightly below the US$0.73 mark at the time of writing.
That makes it a bit of a pain to swap for greenbacks to buy U.S. stocks. With the less-than-ideal exchange rate and greater abundance of quality bargains (at least in my view) on this side of the border, I’d argue Canadians may wish to pick up a neglected TSX stock with their next big purchase.
In this piece, we’ll look at two retail stocks I view as being ultra-cheap as we head into the holiday season.
Undoubtedly, discretionary retailing has not been the place to be over the past few years of inflationary and consumer-facing headwinds. With a recession potentially up ahead, the retail stocks have been pretty easy to throw in the towel on. Still, I’d not neglect their longer-term potential or discount their modest valuation multiples as being too good to be true.
Without further ado, let’s check out fashionable women’s clothing retailer Aritzia (TSX:ATZ) and discretionary kingpin Canadian Tire (TSX:CTC.A) to see where they stand after their recent tumbles.
Aritzia
Aritzia stock got caught in the blast zone, shedding around 60% of its value over a nearly two-year span. Undoubtedly, 2023 has been a great year for many investors but not for shareholders of ATZ. As markets clawed back, ATZ stock nearly suffered a 50% year-to-date haircut. A few tough quarters and a grim macro outlook will do that to a discretionary retailer.
Markdowns could further weigh on margins, as the firm grapples with the higher costs while the lights dim on the economy. Further, consumers may not be so quick to spend on nice-to-have clothing anytime soon. At least not until we’re on the other side of a recession. It’s not an ideal time for Aritzia, but I still think the long-term growth thesis is intact. The company’s U.S. expansion and strong digital presence will eventually help Aritzia stage a recovery. For now, it’s a mercy of a less-than-stellar macro environment.
If you’ve got a long-term horizon, I view the stock as an attractive opportunity. A recession will bite hard into earnings. But Aritzia will live to see better economic days. My takeaway? Don’t give up on Aritzia, as most of the damage is likely already overdone.
Canadian Tire
Canadian Tire has fallen on hard times, with shares now off around 30% from their mid-2021 highs. Indeed, the dividend yield is starting to get fat again, at 4.83%. Should shares retreat by enough for the yield to eclipse 5%, I’d strongly consider nibbling on the dip. Like Aritzia, Canadian Tire is feeling the macro headwinds pretty hard.
With the company recently slashing 3% of its labour force, the firm appears to be in efficiency mode to weather what remains of the macro hailstorm. In due time, I think Canadian Tire will be able to reverse course. By then, however, expect the yield to be far lower than where it’s sitting today.
Discretionary retailer is a tough business in a time like this. While Canadian Tire won’t bounce back overnight, I think the risk/reward scenario looks decent if you’ve got a three-year timespan.
