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Highlights
- Investors should ideally branch out to other havens such as the retail industry, which are defensive and cyclical in nature.
- Diversification is an essential element to consider before riding into the stock market universe.
- Retail companies are known to sell finished goods and services, ranging from clothes, grocery items, general merchandise to auto parts.
While thinking about investment, investors generally stress over major sectors like financial, energy, industrial or materials, which significantly contribute to a country’s economic growth.
However, diversification is an essential element to consider before riding into the stock market universe. Investors should ideally branch out to other havens such as the retail industry, which are defensive and cyclical in nature.
Including retail stocks with robust financials and consumer loyalty can help you maintain a well-balanced investment portfolio.
Also read: How can Canadian investors smartly pick stocks?
What does the retail sector include?
Retail companies are known to sell finished goods and services, ranging from clothes, grocery items, general merchandise to auto parts.
Such businesses can operate in the form of departmental and discounted stores to sell their offering directly to consumers, or function as online platforms and virtual stores, or be a mix of both.
The following are some of the major Canadian retail businesses that trade on the TSX.
- Aritzia Inc (TSX:ATZ) is a Vancouver headquartered fashion brand.
- Canadian Tire Corporation Limited (TSX:CTC) is a Toronto-based retail company selling a wide range of products, such as home and sports equipment, footwear, accessories, auto parts, etc,
- Loblaw Companies Limited (TSX:L) is a Brampton-based retail operator of grocery, general merchandise and pharmacy stores
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How to spot sound retail stocks in Canada?
Heading to your favourite retail store for a shopping spree can be enjoyable. However, spotting a robust retail company requires effort as the operational cost to maintain retail stores is generally expensive, which may take away the earned profit. Hence, the need to investigate if the company is making any money.
The retail sector is likely to be the first to fall prey to the economic slowdowns and shocks as it hampers purchasing power of consumers.
For instance, a company’s growing sales is a good indicator of its increasing customer base. Profits, cash flows and key financial parameters like inventory turnover also reflect the retailer's health.
Retail space after COVID-19
The COVID-19 pandemic has significantly boosted digital operations in the retail industry. Such technological developments are likely to help the retail space in the future as they accelerate sales growth.
Should you invest in retail stocks?
Retail enterprises generally sell identical or similar goods and often undertake advertisement and promotional efforts to making their products seem more appealing, making the field highly competitive.
Hence, investors should keep their emotions aside and carefully gauge a retail company’s overall performance and explore in retail stocks that are safe and likely to grow.
Also read: ETF vs Index Fund: Which is a better investment option?
