2 stocks I would buy for an RRSP as the market rallies

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Although some bears dismiss the market rally as just a bull trap, I would argue that some strong earnings support recent strength. Indeed, stocks suffered from a bad case of indigestion for most of the year. A looming recession induced by anticipated rate hikes (the last Bank of Canada hike was a 100 basis point upward shock) could very well be in the cards, but don’t expect a repeat of the crash 2020 scholarship.

As the market slowly finds its feet, I’d be looking to munch on stocks on your radar that still stand out as decent values. In this article, we’ll uncover two intriguing stocks that may be able to maintain their strength through the end of the year.

So, without further ado, consider a pet supply retailer. Pet Valu Holdings (TSX:PET) and toy manufacturer Spin Master (TSX: TOY).

Pet Valu Holdings

Pet Valu is a relative newcomer to the TSX index, having gone public just over a year ago. The stock has been a winner from the start, rising from $26 per share in June 2021 to a high of $36 and a change per share. The stock dipped in a bear market before posting a partial recovery to around $33 – where the name currently sits today.

At 20.2 times the price-to-earnings ratio (P/E), Pet Valu stock is by no means a cheap retailer, with a specialty retail industry average P/E ratio of only 16.9. That said, Pet Valu deserves to trade at a premium to its peer group. Pet supplies and services tend to be more resilient in the face of an economic downturn. Additionally, Pet Valu is a very well run business with efficient operations. The company’s return on investment (ROI) of 32% is well above the industry average of 20.8%.

The trend towards the humanization of pets (the pet care market could be worth an estimated US$325 billion in less than six years) may also drive the stock much higher in the long run. In short, Pet Valu is a hidden gem of a stock with a market capitalization of just $2.2 billion and outstanding stewards that could help fuel above-market gains over the next decade. As the market continues to recover, I would look for PET stocks to reach new highs.

Spin Master

Spin Master is another under-the-radar mid-cap stock that could be on the verge of a massive upside move. Shares of the Canadian toymaker have been stuck in a one-year consolidation channel, with shares fluctuating between $40 and $50 per share.

Indeed, Spin may have what it takes to emerge as a coil spring thanks to better-than-expected results in the fourth and final quarter. The holiday season is ahead. It’s one that could accompany a drastic slowdown in consumption, but the bar has been lowered a bit.

I think most of the recession risk is priced in, making Spin a stock worth snacking on here after the release of some understated second-quarter earnings that saw earnings per share climb to $0.68, topping the $0.48 estimate. At the time of writing, the stock is trading at 16.1 times the price-to-earnings (P/E) ratio. This is significantly lower than the stock’s historical five-year average P/E of 34.4.

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