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The 2 Best Canadian Stocks to Buy Before a Recession Recovery

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Image source: Getty Images

Written by Amy Legate-Wolfe at The Motley Fool Canada

A recession isn’t even here yet, but investors have been acting like we’ve been in one for the last year. It’s clear why, with inflation and interest rates rising higher, only stabilizing pretty recently. Because of this, there has been a need to cut back on consumer goods. And that’s left some Canadian stocks struggling.

Yet before the year is out, we could certainly see some of these stocks start to recover. And if there are two I would choose first, I would look to Magna International (TSX:MG) and Spin Master (TSX:TOY).

Magna stock

It’s been a rough couple of years for Magna stock. The company continues to struggle with supply-chain disruptions that were brought on during the pandemic. Yet those disruptions continue to wage war on Magna stock and its backlog.

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The company is one of the Canadian stocks that produces car parts. This includes everything from the body to electronic systems. Yet it’s this latter part that’s given investors so much excitement over the last few years.

Magna stock is going to be a big part of the transition to electric vehicles (EV) for many of the largest car manufacturers in the world. It continues to create assembly locations across Canada, with 50% of its revenue coming from North America and 38% from Europe in 2022.

Even as it still goes through supply-chain disruptions, inflation and rising interest rates, there has been positive movement. Sales increased 5% year over year during the fourth quarter, though earnings per share decreased during that time. It also sees sales continue to grow over the next few years, especially with the EV transition. Therefore, it expects its adjusted earnings before interest and taxes margin to increase by 230 basis points by 2025.

Shares of Magna stock are down 7% in the last year, trading at 1.4 times book value, with a 3.59% dividend yield.

Spin Master

Another of the Canadian stocks to consider is Spin Master, which went through a huge climb to then fall back in the last year or so. Supply-chain demands also hurt the company but led to the expansion of online offerings. Then when we went through a massive period of growth, Spin Master stock led the charge as consumption went up.

So, of course, the reverse has been true during this downturn. Shares are down 24% in the last year after going through quite the volatile last five years. Even so, shares are still up 88% in the last decade. And that’s likely to continue.

Spin Master stock is certainly cyclical, but more brand awareness has brought more revenue for the stock as well. Its Paw Patrol brand has been a huge financial success, and there hasn’t been any decrease in brand recognition of the products.

But there has been movement elsewhere as well. While its Paw Patrol: The Movie saw a large increase in revenue, there were other areas that increased as well. The company continues to support its venture program, which has led to numerous acquisitions in the last few years. Operating income for 2022 increased year over year to $343.3 million, though its adjusted earnings before interest, taxes, depreciation, and amortization was down 6%.

So, while there is work to be done, it’s not a dire situation for the stock at this point. It now trades at a valuable 10.2 times earnings and 2.09 times book value. And with shares down this year, you could certainly see a recovery after a recession hits and investors start looking for strong Canadian stocks once more.

The post The 2 Best Canadian Stocks to Buy Before a Recession Recovery appeared first on The Motley Fool Canada.

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Fool contributor Amy Legate-Wolfe has positions in Spin Master. The Motley Fool has positions in and recommends Spin Master. The Motley Fool recommends Magna International. The Motley Fool has a disclosure policy.

2023