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Loblaw Companies Limited (L)
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Dollarama Inc. (DOL)
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Stella-Jones Inc. (SJ)
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Alimentation Couche-Tard Inc. (ATD)
Q: Hi - as a follow up to your reply from my earlier question today on the above, would you consider a further pullback during this possible rotation to be an opportunity to add back to them? This would be under scenario that once a recession is upon us that they would once again do well. Secondly, do you "expect" that this rotation may last a quarter or two...or is your base case for recessionary positioning sooner?
5i Research Answer:
We are not convinced there will be much of a recession. Canada certainly may see slow GDP growth, but with the US 'fine' and with the recent rate pivot (in the bond market) there might be a soft landing in both economies. It will all depend on earnings now. But the prospects for growth we think have improved, so we would expect the rotation to last at least a few months. That being said, the companies noted are doing well and we would have no qualms buying them into their decline. We like it when a 'decline' is not really related to company fundamentals, which we think is largely the case here.