Three Fantastic Canadian Retail Stocks

Recently, I’ve fallen in love with Canadian Retail Stocks. Canadians are probably the most sheepish consumers in the world. There’s a rare brand loyalty to stors that in my opinion you won’t find anywhere else. It’s like as people grow up, these stores become part of who they are.

So here are three fantastic Canadian Retail Stocks you can invest in. I believe all three will continue to deliver superior returns, despite having very good runs so far.

3) Couche-Tard (TSE:ATD.B)

Back in 2009, I considered investing a significant sum into this. Although you can’t see it there, the stock had had a good run up to that point, nearly doubling in a little over a year:

I thought it was a bit expensive, I didn’t like the low dividend and a few other things (don’t remember what it was, I think it was an acquisition), so I passed. Today, the stock basically went up by 1,000% and yeah, I missed the boat.

I see the same problems in Couche-tard today that I saw back in 2009: to me, it looks too expensive. But I was wrong back then and I am most likely wrong today. I think Couche-Tard will keep growing at an insane speed and I think it represents one of the most interesting investment opportunity in the casual retail business.

Couche-tard exploits drugstore, convenience store, that kind of thing. Now, my own personal feeling is that this kind of store cannot possibly make a lot of money. My personal feeling is wrong and Couche-Tard has simply done fantastic, to say the least. I mean, how can you make a lot of money selling $1 chocolate bar and $1.50 bottle of water? Well, you can’t really, but Couche-Tard is proving that you can certainly make a lot of money selling, well, beer and cigarettes.

With still a low number of stores and plenty of room to grow, Couche-Tard might not be as solid an investment was it was 8 years ago, but it remains an outperformer. It even has stores in China now and I think the brand will continue to grow, grab market share and expand. At a valuation of $38B, I think it can continue to grow at 10-15% per year for a very long time. The founders obviously have talent managing it and I don’t see it ending anytime soon.

Verdict: Solid growth company with a strong international presence, a great, solid balance sheet and plenty of growth opportunity. Definitely a strong buy.

2) Metro Inc

I hate this company with a passion. It’s too expensive, too crowded and every single time I go, their prices go up. Arguably, I do not go there very often, but I remember that the price of milk went up every single time I went there. It would probably be up again if I went there again.

But despite that, I have to respect what Metro Inc. is doing. No, it did not go up as fast as Couche-Tard (or my #1 pick), but I believe there is tremendous value to be found in this company.

Over the next five years, I would bet on Metro more than Couche-Tard. Not that Couche-Tard isn’t a good bet, but I think Metro outshines them on the risk / reward profile. Metro is slightly safer and I think it will perform similarly to Couche-Tard in the coming years, that is, up 10-15% per year.

Metro owns some of the best grocery stores in Canada, or at least in Quebec. Metro is a widely recognized name and brand in Quebec and, in many villages and town here, the only large-scale store. Sure, you can go around 10 stores and find the same product as Metro, but it will take you far longer.

Metro is known for its excellent quality of fruits, vegetables, baked goods and meat. I’ve never bought expired food or cans from Metro, ever. Now, that doesn’t mean they don’t try to pull a few fast ones on you (wrong price at checkout, rebates that are not applied at checkout, etc.) but it remains a high-quality, general store.

In addition, Metro owns Super C, which is the only affordable option for food in all of Quebec. Super C is basically Metro, but at 75% of the price. Why don’t everyone shop at Super C? Because there are very few around, and also, well, because it looks cheap. If you’re the kind of person who might feel bad being seen at a Super C…

Metro also owns a few other things, amongst them a pharmacy chain and, of course, Adonis. Adonis is renowed for its fruits and prepared, marinated meat. All these brands are all quality and will all keep performing very well.

Overall, Metro is a safe bet and I don’t see how it could do wrong. Even during the worst economical times, people still need food. Metro also sells beers and so on, which means it is slightly in competition with Couche-Tard. But a frozen pizza that is sold $6.49 at Couche-Tard will be sold for $4.49 at Metro (and $3.49 at Super C). Couche-Tard is a convenience store, Metro is a general, global grocery store.

VERDICT: Another strong buy as a slightly defensive option. Same growth profile as Couche-Tard (except for the international part) with a lower risk.

1) Dollarama

Confession: I invested in Dollarama’s IPO. Then, it doubled, went up another 50% and I sold. I’ve regretted this ever since.

To say that Dollarma is a strong growth business would be an understatement. This is what Alibaba should have been had the IPO not been a disaster. This is what “perfection” looks like in terms of investment. Really, it would be hard to find a better graph for any stock. Up 1,159%; like wtf?

Dollarama operates, well, dollar stores. Back in the days, most of its items were $1 items, but today, you can hardly find anything at that price. Still, it sells high-quality brands at extremely attractive prices, all in one store. You can find the same toothpaste or deodorant you find at a pharmacy for half the price. You can also find clothes, disguises, office supplies, kitchen things (and not just crap) for a fraction of what you’d pay elsewhere. A plate that you would find for $20 at a kitchen sale will be $3 there.

Every time I step into a Dollarama, I am impressed. I always find something new or interesting. I have been told that Dollarama tracks every single item of every single row or every single shop and optimize its product mix for every market. While I have problems believing that, I have no problems believing that Dollarma is a highly-optimized store and, to me and millions of other Canadians, it became a go-to destination. If you want something that’s normally under $10, chances are you can grab it there for $2.50.

For instance, just a few days ago, I needed a new bathsuit. I wasn’t sure I wanted to pay the $50+ price tag those things usually include, so I went to Dollarama and, boom, $3 and I got it.

Need soil for your plants? Or maybe the plants themselves? Or maybe some way to water them automatically or maybe some fertilizer? Dollarama has all of that. And I don’t doubt that in a few years, it will begin offering cheap electronics. Toasters, air fryers, that kind of thing, for a ridiculously-low price as well.

Dollarama also sells things that you will use regularly, again at very low prices. Need some wrapping paper? Some ziploc bags? Yeah, I think you know where I’m going now. Some stores even sell fresh breads.

I have zero doubt Dollarma will keep doing amazing and I will regret selling my IPO shares for the rest of my life. Overall, Dollarama is the best store in Canada and by far the best retail stock you could ever invest in.

Even at their current valuation, I think it’s a top pick. I think that they can easily hit $50B just with normal growth and probably $100B with a few acquisitions and perhaps stores in the US. But that’s several years away.

Want an amazing buy and hold shares in the retail sector? Dollarama is for you.

Conclusion

All three retail shares I presented offered very different growth profiles, from a convenience store to a grocery chain and a dollar shop. I think all three belong in solid, balanced portfolio. Looking at how they fared:

You can see they all did amazing, easily beating the market. I think all three will keep doing very well, but if I were to pick just one, I’d pick Dollarma, even after going up 1,170%. It’s just that well managed and that amazing.

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