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The Coachman's Report - At least it's Friday right?

Updated: May 29, 2022

Who needs to buy the dip when you can just sell the bounce? That certainly seemed to be the thought process yesterday when North American equities sold off to the tune of 5 percent, bringing the vix up 35 points from Wednesday’s close. Anyways it's that time of the week again, which means we'll dive deeper into the market merry-go-round of these last few sessions and then make one long-term stock recommendation for your portfolio!


“Every accomplishment starts with the decision to try”



Market Talk

Today marks the end of quite a week with an FOMC meeting, equities that can’t decide where to go and new job market data, all wrapped together with a bow of wartime - on the basis of recency, let's start with the job data. Today’s Friday jobs report detailed an additional 428, 000 non-farm payrolls added to the US economy, this was in line with what has been one of the widest forecasted ranges by economists of 350K to 1.2M having been projected. Despite this strong jobs data bringing the unemployment rate to 3.6%, investor sentiment has edged towards the bearish side of the pendulum these last couple of weeks with 52.9% of investors predicting a negative return within the market over the next 6 months (this is only a couple percent off of the 1 year high of 59.4% reached last week).

Considering the fact that the economy may be pretty close to full employment given the strong job market and performance throughout the pandemic the consumer discretionary sector, as we stated in an earlier Coachman’s Report this week - it has been the weakest sector throughout this Q1 earnings season and could have been an indication of this week being the first domino to fall marking a prolonged bear market and slowing of economic growth as inflation is dealt with (we’ll be watching that inflation print on May 18th very closely). The market, as a sum of the economic developments above, has remained in the higher ranges of its volatility oscillations, almost eclipsing the vix's year-highs that were set by the start of the Russia-Ukraine conflict in March. That said, even though the market was having one of its best weeks in a while, appreciating 4% until Wednesday, and then erasing those gains during Thursday’s trading session, it's important to zero in on the fact that it is the most volatile in the periods leading up to a major crash.

Now a meme at the expense of Shopify’s abysmal earnings…


Canadian Tire Corporation (CTC.A:TSX) - The True North, Discounted!

With Canadian equities slated to outperform through the rest of 2022, what better way to bet on Canada than with the multi-channel, vertically-integrated and brand diversified giant that is the Canadian Tire Corporation. After rallying 160% from its pandemic lows and then trading sideways through the last TTM period, Canadian Tire is undervalued - down 18% from its ATH and with a forward P/E of 9.87 (the lowest of its peer group), now is the time to buy…not to forget, that at current levels, it dividend yields just over 3%.

Despite being battered, Canadian Tire has built a solid business over the last 5 years with some profitable acquisitions, they have learnt from their successes and replicated the promising growth of their more flagship business lines where they’ve been able to; a prime example is their 2017, $500M acquisition of Sportchek, which has boasted double-digit sales growth QoQ since their having been taken over by new management - in the most recent reporting period (Q4 2021), their revenue grew 15.9%, overshadowing Canadian Tire’s other apparel arm, Mark’s, which also had stellar growth figures of 15% over the same period. Additionally, Canadian Tire maximized the effectiveness of their e-commerce channel’s within the pandemic for their namesake brand and investors can look for them to generate more revenue growth as they make the same implementations within their other retail lines. Last, within the Q4 2021 period, $CTC added 770, 000 members to their Triangle Rewards loyalty program - this represented a 23% jump pushing loyalty sales as a percentage of total sales to 63%; going forward, this will allow them to leverage more data in both catering to their current clientele and in acquiring new clientele as a data-driven sales machine.

Last, with a growing Gas+ business line that has over 250 locations, the rally in oil prices having been pushed forward to the end consumer at the pumps, will possibly allow an investor looking to get into $CTC before earnings to be met with a solid cushion of breathing space as they post added revenue with this channel and re-assess earnings guidance on appreciating oil prices this Q1 earnings call. Moreover, technicals-wise, $CTC is on the lower end of its price channel, with an RSI flashing oversold like it hasn’t for the last 5 months.


Chart of the Day: The Effect of Missed Trading Days on S&P 500 Returns

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