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What are we looking for?

Canadian and U.S. blue chip stocks with reliable earnings that perform well during recessionary periods.

The screen

With rising interest rates and the potential for an economic downturn, today we focus on blue chip companies with reliable earnings in two industries often considered recession-proof: discount stores and food retail/distribution.

  • First, we screen for companies traded in the United States and Canada with a market capitalization of more than $15-billion.
  • Next, we screen for companies within these industries with reliable earnings that are likely to persist. We use the StarMine Earnings Quality Model to screen for companies with a score of 70 or higher.

The Earnings Quality Model is a percentile ranking of stocks based on sustainability of earnings, with 100 representing the highest rank. The model assumes companies with persistent, high-quality earnings and strengthening fundamentals are likely to perform well in the future.

More about Refinitiv

Refinitiv, a London Stock Exchange Group business, is one of the world’s largest providers of financial market data and infrastructure, serving more than 40,000 institutions worldwide. Refinitiv provides information, insights, and technology that drive innovation and performance in global financial markets, enabling the financial community to trade smarter and faster, overcome regulatory challenges and scale intelligently.

What we found

Companies in the food retail/distribution and discount store industries

CompanyTickerIndustry NameMkt. Cap. ($ Mil.)Earns. Quality Rank1Y Ttl. Rtn. (%)Div. Yld. (%)Closing Price ($)*
Kroger Co.KR-NFood Retail & Distrib.44,996.89719.72.247.45
Costco Wholesale Corp.COST-QDiscount Stores297,274.29613.00.7506.57
Albertsons Cos. Inc.ACI-NFood Retail & Distrib.19,328.893-6.81.827.43
George Weston Ltd.WN-TFood Retail & Distrib.21,646.89317.21.8150.28
Sysco Corp.SYY-NFood Retail & Distrib.53,498.8847.32.579.79
Loblaw Cos. Ltd.L-TFood Retail & Distrib.37,349.97635.41.4114.11
Dollar General Corp.DG-NDiscount Stores73,397.57311.70.9245.61
Dollarama Inc.DOL-TDiscount Stores22,657.57240.00.378.62

Source: Refinitiv

* Recent price close is shown in native currency

The screen, ranked by the Earnings Quality Model, resulted in eight discount store and food retail/distribution companies. Here are a couple to highlight:

Costco Wholesale Corp. COST-Q offers products and services through its membership warehouses, including grocery, appliances, furniture, health and beauty, automotive and travel. It ranked second on the list with an earnings quality score of 96. One of the most significant components to Costco’s earnings stability is its membership renewal rate, which has held steady at 90 per cent in a variety of economic environments. In addition, analysts’ consensus on the company’s stock price is a buy rating with an average recommended price target of US$576.21, which is 13.8 per cent above its recent closing value. However, Costco’s strong competitive advantage could be in jeopardy as digital retailers scale and expand distribution channels, enabling them to offer delivery-based alternatives to Costco’s offerings.

Loblaw Cos. Ltd. L-T generated an Earnings Quality Model score of 76. The retailer generated the second-largest one-year total return on our list (after Dollarama Inc.) of 35.4 per cent, even in the current period of rising interest rates and high inflation. This strong growth has been largely driven by the company’s consistent earnings surprises. In fact, it has exceeded earnings a share estimates in the last 10 quarterly earnings releases. Loblaw’s PC Optimum and PC Financial services and its private label grocer brands, President’s Choice and No Name, have been successful at influencing loyal customers to shop at its grocery and pharmacy locations. Also, it operates a widespread retail store network in Canada; according to management, 90 per cent of Canadians live within 10 kilometres of a chain store in the Loblaw group. Providing customers with convenient access to a mass range of products gives the company a leg up on its competition.

Investors are advised to do their own research before trading in any of the securities shown.

Erik Foo, CFA, is a proposition sales specialist at Refinitiv, covering research and portfolio management sales.

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