JPMorgan Chase CEO Jamie Dimon says investors should brace themselves for an “economic hurricane.”
If that’s the case, which are the stocks that can anchor your portfolio and withstand a storm?
One analyst says this company, whose shares are higher by more than 2,100 per cent since 2009, should be a core position in Canadian portfolios for a myriad of reasons including its low risk profile, growth prospects, and “recession resistant characteristics.”
Stifel analyst Martin Landry sees Dollarama Inc. becoming “a leading value retailer, not just a dollar store operator.”
“With rising price points, which will reach $5 this summer, the company has successfully increased its addressable market and should continue to gain share of Canadians’ wallet.”
Landry has a “buy” rating on DOL and a 12-month price target of $80.50 a share saying DOL should be “a core position in most Canadian portfolios, given its low risk profile and growth prospects.”
In his research report, Landry goes on to say:
“With an estimated market share of more than 80 per cent, Dollarama is a market leader in the dollar store segment in Canada.
The company has a very high brand awareness at 98 per cent and a loyal customer base across all income classes.
“Our analysis suggests that Dollarama offers significant value to consumers by pricing its products at a discount of 20-25 per cent to Walmart and 30-35 per cent to IGA, owned by Sobeys, while generating gross margins that are 1,700 basis points higher than Walmart and Sobeys.
This discrepancy is explained by the direct sourcing prowess of Dollarama and a higher margin product mix.
We believe that this deep value will translate into market share gains this year as Canadians trade down to fight inflation.”
Landry cites Dollarama’s “attractive” business model, including “flexible” product offerings that are regularly refreshed, which provide management with “significant” control over margins “as demonstrated by the stability seen in the last three years, where gross profit margin evolved within a narrow 30 basis points range (43.6 per cent to 43.9 per cent).”
“This low volatility, which was achieved at a time of heightened challenges, is impressive.
The company’s business model provides management with good visibility, which translated into Dollarama having met or exceeded its guidance in each of the last five years.”
Landry expands on DOL’s growth:
“Dollarama’s 10-year earnings per share compound annual growth rate (EPS CAGR) of 19 per cent is remarkable and among the best within the Canadian consumer sector.
The company’s proven growth algorithm consists of:
(1) Unit growth with the company targeting to reach 2,000 stores across Canada by 2031, calling for a 4-per-cent unit growth CAGR.
(2) Comparable store growth in the range of 4 per cent to 5 per cent.
(3) Continued margin expansion driven by scale and operational efficiency.
(4) A history of returning capital to shareholders, which has resulted in over $5.5 billion returned to shareholders since 2012.”
Landry concludes with these comments:
“In these uncertain times, Dollarama can provide investors respite.
The company’s shares are up 15.9 per cent year-to-date, significantly outperforming the S&P 500 index, which is down 13.3 per cent.
The company benefited from a risk-off trading pattern as investors see DOL as having recession resistant characteristics combined with a good ability to cope with inflationary pressures.
Given persistent inflation and rising interest rates, the economic turbulence could remain for several months, so we believe Dollarama will continue to be a relative ‘safe heaven’ and provide some stability to investors.”
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