HD - Here's Why I'd Buy Canadian Tire Stock Over Home Depot

2024-02-12 21:15:00 ET

Canadian Tire ( TSX:CTC.A ) is one domestic retailer that’s likely close by (or at least in driving distance) to your average Canadian consumer. Undoubtedly, Canadian Tire’s a brick-and-mortar play that’s still standing even after many years’ worth of disruption from various digital retailers. With omnichannel taking centre stage, Canadian Tire stands out as a great retailer, regardless of what means consumers use to shop. With a solid digital presence and an extensive retail network across the country, Canadian Tire stock represents one of the retail plays that can be held onto for decades at a time.

Though shares of CTC.A have gone flat in recent months, I’d argue that the value hunters have plenty of love from the Canadian discretionary kingpin as the economy looks to shrug off what remains of consumer-facing headwinds (think high inflation and macro headwinds).

The stock sits at 14.5 times trailing price-to-earnings (P/E) alongside a near-5% dividend yield. Undoubtedly, the stock has been a laggard in the last five years (0.4% gains over the lengthy timespan). But don’t count on Canadian Tire to stay flat, as various initiatives look to push the stock out of its multi-year funk.

In this piece, we’ll weigh Canadian Tire stock up against a U.S. discretionary and hardware play in Home Depot ( NYSE:HD ). Personally, I’m sticking with the Canadian retailer at these depressed prices, even if Canada is unable to steer clear of a recession this year.

Canadian Tire

The biggest draw to Canadian Tire stock has to be the valuation . It’s a heck of a lot cheaper than Home Depot. And though Canadian Tire sells a wide range of home and garden goods, with an extensive line-up of trusted Canadian-owned brands, it doesn’t have the same hardware chops as the likes of a Home Depot or even a Home Hardware.

Undoubtedly, Home Depot provides numerous other services aimed at handymen and professional contractors. It’s a different flavour of discretionary than Canadian Tire.

Nonetheless, I still find Canadian Tire’s relative discount makes it the better retailer to own for the long haul. With its Triangle loyalty program, the proudly Canadian retailer seems poised for sustained gains once Canada’s economy heats up again. If a recession proves short-lived, CTC.A stock may already be too cheap right here at $141 and change per share. Either way, the dividend is sure to be incentive enough to give the stock the time to recover.

Home Depot

Home Depot is one of the bluest blue chips out there. Aside from being more expensive than Canadian Tire stock, both on a per-share and P/E multiple basis (shares go for 23.3 times trailing P/E), Home Depot is a much larger firm than Canadian Tire. In fact, it’s a behemoth with a US$361 billion market cap.

With shares also trading turbulently sideways for a few years after the sell-off of early-2022, HD stock seems to be a play that only long-term thinkers can enjoy. The 2.3% dividend yield is a nice bonus. But it’s not the star of the show; capital gains potential is. The stock has surged around 89% in the last five years, while Canadian Tire has stood still.

Though I view Home Depot as an impressive discretionary retail play to ride the home improvement trend, I still think the depressed valuation (and higher yield) of Canadian Tire makes it a better value play for an economic bull run.

The post Here’s Why I’d Buy Canadian Tire Stock Over Home Depot appeared first on The Motley Fool Canada .

Fool contributor Joey Frenette has no position in any of the stocks mentioned. The Motley Fool recommends Home Depot. The Motley Fool has a disclosure policy .

2024