UBS Analyst: Look for Opportunity in Canadian Consumer Stocks

The price of TSX consumer stocks are telling us that Canadian consumers are headed toward the same grim fate as those in the United States.

But with Canada’s economic outlook expected to outperform the U.S., George Vasic, strategist at UBS says there is opportunity in “downtrodden” TSX consumer stocks.

Specifically, he says Shoppers Drug Mart Corp. (SHDMF.PK), Tim Hortons Inc. (THI), and Rogers Communciations Inc. (RCI) all have a significant upside to target.

Consumer staples, discretionary and telecom stocks on the TSX have declined sharply since end of October, and have lagged behind their S&P 500 equivalent.

In this time, the TSX discretionary sector lost 18% compared with a 15% drop in the U.S., consumer staples fell 18% compared with a 6% loss south of the border, while Telecoms were down 21% compared with 18%.

Mr. Vasic pointed out that TSX consumer stocks outperformed the S&P 500 when the U.S. slipped into recession in 2001, and Canada did not.

He said the dismal performance of the TSX’s three largest consumer sectors was surprising given the better outlook for Canadian consumers compared with those in the U.S.

... the Canadian consumer is not stretched, and is further supported by recent tax cuts,” he said. Accordingly, we believe there is opportunity in downtrodden TSX consumer stocks.

Comments

[engineering...:]

Yes, but the Canadian housing bubble deflation is lagging that in the U.S. by no more than a year. Still a better near-term consumer outlook than in the U.S., but these stocks are still expensive.
I like Timmy Ho's since coffee and doughnuts are recession-proof and high-volume, high-value treats should steal a lot of slack from overextended Starbucks junkies (all it would take is for Tim's to introduce a couple "premium" coffee options during a recession to finish off the more marginal of the SBUX franchises).
Shopper's is (in my opinion) overextended on its massive expansion of stores (there are three large Shoppers stores ON THE SAME STREET OVER AN EIGHT-BLOCK STRETCH in my small city). The Canadian category-killer drugstore market is supersaturated and Shoppers has set itself up to eat its own young by expanding so quickly.
Rogers ... maybe ... but TELUS will come hard with a competing GSM product very soon. Luckily, cable is still set up in secure local fiefdoms, so ... maybe.
All things being equal, I prefer to invest in Asian consumers at this point. Asians are still saving some of their money and their markets are nowhere near saturated. That points to producers of consumer goods with strong Asian markets, not providers of consumer services to North American markets of debt-drunk paupers.

2008 Feb 10 10:51 PM