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The current stock market sell-off has given investors the opportunity to buy quality stocks at a discount. The market chaos has caused the stock prices of companies in various sectors to drop significantly. In this article, I will analyze two battered retail stocks on the TSX index that are well positioned to generate outsized gains in 2022 and beyond.
canadian tire (TSX: CTC.A) is a discretionary retailer. It sells home goods, sports equipment, clothing, footwear, auto parts and accessories through a network of more than 1,700 stores. Its brands are among the most famous in Canada, including Canadian Tire, Mark’s, SportChek, Party City, Atmosphere and PartSource.
The company has performed very well during COVID-19, and it should be on the right track right now as the world moves into a post-pandemic era. In the first quarter of 2022, Canadian Tire’s retail sales jumped 9.7% year-over-year. It also increased dividends by 25% to $1.625 per share, indicating a forward yield of 3.3%.
The threat of decade-long high inflation, rising interest rates and the prospect of an economic recession weigh heavily on Bay Street. So you need to identify companies like Canadian Tire that enjoy significant pricing power and a wide economic gap.
Canadian Tire shares are down 25% from all-time highs, allowing investors to buy the dip. The stock closed at $168 on June 27 and the average analyst target for the stock is $227.40, a potential upside of around 37%. After factoring in its dividend yield, total returns will be closer to 40% next year.
Is it wise to bet on a luxury value while a recession hangs over our heads? Yes, Aritzia (TSX: ATZ) is a retailer that sells everyday luxury items and is posting strong numbers, despite a weak macroeconomic environment.
In the company’s fourth quarter of fiscal 2022 (ending February), Aritzia reported revenue of $443.3 million, a 66% year-over-year increase. Its net income more than doubled to $34.2 million from the fourth quarter of fiscal 2021.
Aritzia attributed its meteoric revenue growth to its foray into markets south of the border. Revenue from the United States increased 132% year over year in the fourth quarter, accounting for 45% of total sales.
Aritzia is expanding even as the United States struggles with high inflation. The company plans to open 10 new locations and expand five existing stores, most of which will be located in the United States. Aritzia expects these investments to grow its revenue by 20% to $1.8 billion in fiscal year 2023. Additionally, the company’s e-commerce business grew by 32% during of the last financial year, considerably diversifying the revenue base.
ATZ stock is valued at 21 times forward sales and less than three times forward earnings, which is quite reasonable for a growth stock. Analysts who follow the company expect Aritzia to increase sales by 22% to $1.82 billion in fiscal 2023, while adjusted profit is expected to increase by 9.2% to 1, $67 per share.
With numbers like these, Aritzia is one of the most stable growth stocks on the TSX. Aritzia stock is currently priced at $38 while Bay Street has a 12-month average target price of $62, indicating almost 63% upside potential.