Safe haven success won't come easy

Fri Feb 22, 2008 5:58pm EST
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By Susan Taylor

OTTAWA (Reuters) - Investors unable to stomach a fitful market and unsettled by economic worries might seek refuge in recession-resistant consumer stocks, but success in this safe-haven strategy won't come easy.

Profit hinges on tough scrutiny and sifting through lean offerings to unearth the best bargains with the most potential, while weeding out those stocks too badly damaged by rough competition or a poor business strategy.

"The argument for staples, conceptually, may be fantastic, but the actual companies available on the Toronto Stock Exchange may not be so fantastic," said Merrill Lynch Canada chief economist David Wolf.

"A macro idea is great, but it always needs to be tempered by microanalysis, or you can get yourself into trouble."

Several analysts say that sector stars include pharmacy retailer Shoppers Drug Mart SC.TO, coffee and doughnut chain Tim Hortons THI.TO and auto parts and household goods retailer Canadian Tire CTC.TO (CTCa.TO: Quote).

Shoppers, whose stock is down about 4 percent so far this year, is forecasting growth of 12 percent to 15 percent in 2008.

Some of the credit for Shoppers' solid financials goes to a carefully planned strategy and early preparation for Wal-Mart's (WMT.N: Quote) push into the Canadian market, analysts add.

"Three-quarters of their revenue is derived from truly staple goods that will not fluctuate in a recession," said Research Capital analyst Stuart Morrow. "So that's a pretty good investment if you're looking at a downturn."   Continued...