Economic Slowdown Doesn't Deter Investment in Value-Focused Stocks

The Canadian economy has been experiencing a slowdown, but that doesn't mean investors should stop investing. Amy Legate-Wolfe from The Motley Fool Canada believes that a slowing economy makes her pickier about what she owns, rather than causing her to stop investing altogether.

She cites the Bank of Canada's expectation for 0.7% GDP growth this year and the August employment numbers, which fell by 42,000 jobs. However, she also points out that second-quarter growth rebounded sharply, suggesting that a recession may not be inevitable.

Legate-Wolfe argues that economic slowdowns change where consumer spending goes, rather than stopping it altogether. She believes that businesses selling necessities or solving problems customers can't ignore will perform better in a slow economy.

Two such stocks are Dollarama (TSX: DOL) and Waste Connections (TSX: WCN). Dollarama operates 1,734 stores across Canada and has expanding businesses in Latin America, Mexico, and Australia. The company's Canadian comparable-store sales increased 5.4% in the latest quarter, driven by a 3.7% increase in transactions.

Waste Connections collects, transfers, recycles, and disposes of waste across Canada and the United States. Households still produce garbage even in a weak economy, providing a steady source of revenue for the company. Waste Connections completed deals representing more than $100 million in annualized revenue during the first half and repurchased a record $614.5 million of its own shares.

Legate-Wolfe acknowledges that neither stock is cheap, with Dollarama trading around 34 times forward earnings and Waste Connections trading at 26.5 times forward earnings. However, she believes that these companies have ways to keep moving even if the economy stays weak, and that investing in them provides flexibility.