A Top Stock Pick for the Contrarian Investor
The Motley Fool
Published May 16, 2019 08:00
To be a contrarian investor takes a lot of nerve. While the market is swinging one way, contrarians go against the grain. They see what others don’t or, at the very least, are willing to act on what’s in front of them as opposed to being influenced by the market.
With the U.S. and China trade war dominating the news, the retail industry has been under pressure. As such, it is ripe with stock picks for contrarian investors. Consider Canadian Tire (TSX:CTC.A).
If you are Canadian or have lived in Canada, then there is a good chance at some point you visited one of Canadian Tire’s stores. Most have probably made it a frequent shopping stop. The company has a significant moat and has one of the most recognizable and respected brands in the country.
Over the past year, the stock has been a frequent target for bears. It has lost 14% of its value and in 2019, has just barely treaded water. At one point, it was actually up almost 10%, but the recent trade news and disappointing earnings has sent its stock into another downward spiral.
Recent quarterly results Let’s start with first-quarter earnings. Canada’s prolonged winter had a considerable impact on its Canadian Tire namesake brand. Earnings in its core segment fell by 2.7% and was a significant factor in its overall $0.26-per-share miss. On a consolidated basis, revenue was up 2.8% to $2.894 million, beating expectations by $15.60 million.
It is important to note that earnings were impacted by a few one-time factors that are not likely to repeat in the future. These include lower gains on property sales, a sell down on CTC’s interest in the REIT, and additional financing costs in large part due to the Helly Hansen acquisition. In total, these impacts had a $0.29 impact on earnings.
The company suffered from a mixed headline, but there were plenty of positives. For starters, comparable sales grew by 6.1% and it experienced considerable penetration of its Triangle Rewards loyalty program.
A great company at a great value Thanks to the most recent downtrend, Canadian Tire is now a bargain. It is trading at a cheap forward price-to-earnings (P/E) ratio of 10.04 and is trading well below historical averages. In fact, it hasn’t been this cheap since 2012.
Analysts are almost unanimous in their coverage on the company — 12 of 13 rate Canadian Tire a buy. Post-earnings, two analysts immediately increased their price targets on the stock. As of writing, analysts have a one-year price target of $171 per share. This implies 20% upside from today’s price of $142.32 per share.
Get The App
Foolish takeaway Canadian Tire is one of those rare buy-and-forget stocks. It is also a rare triple threat. It is expected to grow by double digits, is a Canadian Dividend Aristocrat, and provides excellent value. This is a great company trading at a once-in-a-decade bargain price.
Don’t wait long. The company’s stock is nearing oversold territory and is due for a bounce.
Fool contributor Mat Litalien owns shares of CANADIAN TIRE CORP LTD CL A NV.
The Motley Fool’s purpose is to help the world invest, better. Click here now for your free subscription to Take Stock, The Motley Fool Canada’s free investing newsletter. Packed with stock ideas and investing advice, it is essential reading for anyone looking to build and grow their wealth in the years ahead. Motley Fool Canada 2019
This Article Was First Published on The Motley Fool
Written By: The Motley Fool
Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks.
Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.
Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. Fusion Media and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website.
It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website.
Fusion Media may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers.