9 Canadian consumer discretionary stocks benefiting from potential interest rate cuts

What are we looking for?

Consumer discretionary stocks with return on capital above their historical value.

On Dec. 13, U.S. Federal Reserve Chair Jerome Powell stated that the Fed anticipated three rate cuts in 2024. On Dec. 15, in a year-end speech to the Canadian Club in Toronto, Bank of Canada Governor Tiff Macklem said it was too early to consider cutting their policy rate.

While it is premature to celebrate the prospect of lower rates in Canada, the monetary policies of the U.S. and Canada are closely interconnected. It is wise to keep an eye on promising options that typically thrive in a rate-cut environment, such as consumer discretionary stocks.

The screen

We screened Canadian companies in the consumer discretionary sector with a market capitalization greater than $1-billion, which also have:

  • five-year return on capital greater that 8 per cent;
  • trailing-12-month return on capital greater than the five-year return on capital;

Companies are ranked based on the Stockpointer (SP) score. The score mainly considers risk-adjusted return on capital, earnings-per-share growth and free-cash-flow per share. The score varies between zero and 100. The higher the value, the better the company.

For informational purposes, we have also included price-earnings, one-sales growth, one-year price return, and dividend yield.

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What we found

Attractive consumer discretionary stocks

GIL-T GILDAN ACTIVEWEAR INC. 46.15 8.0 12.9 15.4 73.0 -0.3 13.1 22.4 2.0
FTT-T FINNING INTERNATIONAL INC. 37.48 5.4 9.8 15.2 73.0 22.6 9.7 11.4 2.9
DOL-T DOLLARAMA INC. 90 25.3 27.3 31.0 73.0 18.7 27.0 11.9 0.3
QSR-T RESTAURANT BRANDS INTERNATIONAL, INC. 98.60 31.3 9.8 12.5 70.0 14.2 24.9 7.0 3.1
MTY-T MTY FOOD GROUP INC. 52.81 1.3 8.5 10.0 69.0 82.2 13.6 -11.6 1.9
TRI-T THOMSON REUTERS CORPORATION 185.90 84.6 10.0 11.4 68.0 8.4 29.0 19.4 1.4
LNR-T LINAMAR CORPORATION 61.70 3.8 8.3 10.0 68.0 26.3 7.8 -4.0 1.5
TOY-T SPIN MASTER CORP 33.48 3.5 14.4 17.2 65.0 -9.5 15.4 2.1 0.7
BYD-T BOYD GROUP SERVICES INC 266.17 5.7 8.3 11.0 59.0 29.7 51.9 23.8 0.2


Gildan Activewear Inc. has demonstrated a robust 12.9-per-cent return on capital over the past five years and continues to perform well, with a trailing return on capital of 15.4 per cent. This performance is accompanied by a reasonable price-to-earnings ratio of 12.6. On Dec. 11, Gildan shares tumbled 10.9 per cent drop following the board’s decision to remove co-founder Glenn Chamandy as CEO of the company. This move prompted criticism from four major shareholders, collectively holding about 20 per cent of Gildan’s shares, who publicly condemned the board’s decision. Over the weekend, the board offered additional details and rationalized their choice based on Mr. Chamandy’s lack of co-operation with the board over its succession planning.

Finning International Inc. has secured a commendable 9.8-per-cent return on capital over the past five years and is currently on a positive trajectory with a trailing return on capital of 15.2 per cent. The company has demonstrated its agility and market responsiveness through robust one-year sales growth of 22.6 per cent. However, despite these positive indicators, the market appears skeptical of sustained growth, evidenced by their price-to-earnings ratio of only 9.9, the second lowest on our list.

Dollarama Inc. has showcased an impressive 27.3-per-cent return on capital over the past five years. This notable performance could justify the higher price-to-earnings ratio of 27.9. The company has recorded robust one-year sales growth of 18.7 per cent. Consumers, grappling with restrained budgets amid rising inflation and interest rates, increasingly turned to Dollarama for affordable shopping solutions.

Investors are advised to do further research before investing in any of the companies listed in the accompanying table.

For more details about these stocks, subscribe to the Inovestor for Advisors platform for free.

Anthony Ménard, CFA, is vice-president of data management at Inovestor.

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