When it comes to retail stocks, there’s a stereotype among many investors. In short, that view comes down to staying away from traditional retail until the retail apocalypse has passed. Fortunately, not all retailers suffer from that problem. There are some retail stocks on the market that have done very well since the pandemic started.
Let’s take a look at some of those stocks.
The dollar store advantage
Dollar stores are incredibly defensive. Unlike most retailers, they thrive during downturn periods of the economy. When it comes to dollar store stocks, Dollarama (TSX:DOL) is the stock to consider.
Canada’s largest dollar store operator has a growing network of stores in every province. The +1,200 stores in Canada sell a variety of goods at fixed price points up to $4. The fixed price point and bundling of lower-priced goods really drives home Dollarama’s value statement. This leads to attractive sales numbers, irrespective of external factors.
By way of example, in the most recent quarter, Dollarama saw sales increase by 1.6% to $1,029.3 million. Interestingly, same-store sales in the quarter actually dropped by 5.5%, reflecting the ban on the selling of non-essential items in Ontario during May and part of June. Worth noting is the turnaround when the ban was lifted on June 10. For the remaining 7.5 weeks in the quarter, Dollarama saw same-store sales increase 5.1% year over year.
If that isn’t defensive enough, let’s talk about Dollarama’s international presence. The company has a growing network of stores in Columbia, Guatemala, El Salvador, and Peru under the Dollar City banner. Within Latin America, Dollarama boasts 294 stores, reflecting 30 net new stores opened in the past year.
The perfect business model that you might not even realize
When was the last time you filled up your car or went into a convenience store for something and thought the business was a good investment? Probably never, but that’s okay.
In that case, allow me to introduce Alimentation Couche-Tard (TSX:ATD.B). Couche-Tard is one of the largest gas station and convenience store chains on the planet. The business model is simple: it provides quick service in terms of fuel and food to customers that are en route to their destinations.
Like the other retail stocks on this list, Couche Tard is an incredibly defensive pick. In the most recent quarter, the company saw revenues come in US$13.58 billion. This was a considerable increase over the US$9.71 billion reported last year. During the pandemic, the company saw fuel volumes increase while in-store sales dipped.
With a return to normalcy now happening, there’s little to stop this retailer from pushing forward and continuing to aggressively expand its footprint further.
This business is a necessity and a great investment
Some of the best investments are ones that we need, interact with each day and don’t even realize we can invest in. No, I’m not referring to your favourite utility stock (which can be a great investment),but rather your grocer.
Metro (TSX:MRU) is one of the largest grocers in Canada which also boasts a sizable pharmacy network. Grocers were largely immune to the closures during the pandemic. Yes, we had to line up (sometimes outside), but they remained open. And customers were buying (and continue to) a lot.
This makes the consumer-defensive appeal of the stock off the charts. If that weren’t enough, Metro offers a quarterly dividend that carries a yield of 1.66%. That may not sound as attractive as traditional income stocks, but keep in mind that Metro has provided investors with healthy annual upticks to that dividend for years.
Metro is definitely a retail stock to buy and hold for the long term.
Will you buy these retail stocks for your portfolio?
There are two key takeaways for prospective investors. First, the need to diversify has never been greater. Second, no investment is without risk. While the retail stocks noted above are great defensive options, they too pulled back a bit during the pandemic. It’s to be expected. But, perhaps more importantly, they bounced back.
In my opinion, the retail stocks mentioned above are great investments that would do well in any well-diversified portfolio.
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.