Can Loblaw Stock Be a Safe Buy Despite the Looming Tariff Risk in the Markets?

Rising costs and trade uncertainties have put pressure on many Canadian companies, especially those with exposure to the U.S. economy. Tariffs and supply chain disruptions have made it difficult for businesses to maintain margins, leading to volatility in the stock market.

However, Loblaw (TSX:L) stands out as a relatively safe option in this environment. As Canada’s largest grocery retailer, the company benefits from stable consumer demand, local sourcing advantages, and pricing power that allows it to pass on higher costs to customers without significantly impacting sales.

Stability in a challenging market

Unlike many Canadian businesses that rely heavily on U.S. trade, Loblaw’s operations are primarily domestic, reducing its exposure to tariff risks. The company’s ability to source products locally gives it a competitive edge, allowing it to navigate supply chain challenges better than retailers that depend more on imports. Even if tariffs between Canada and the U.S. were to escalate, Loblaw’s business model provides insulation from the worst effects.

The stock has performed well over the past year, rising 32% despite broader economic concerns. And with a beta of less than 0.2, Loblaw moves independently of market swings, making it an appealing choice for risk-averse investors.

Valuation and growth potential

Loblaw currently trades at a price-to-earnings ratio of 25, which is somewhat expensive for a grocery retailer. Typically, grocery stocks trade at lower multiples due to their lower growth potential, but Loblaw’s strong market position and steady revenue streams justify some of this premium.

Investors seem willing to pay for its reliability, but upcoming earnings, expected later this month, will provide more clarity. If the company delivers strong results, the stock could continue its upward trend. However, any signs of slowing growth or margin compression may lead to a pullback.

A top defensive stock that pays dividends

For long-term investors, Loblaw offers a combination of steady growth and income. While its dividend yield of 1.1% is relatively modest, it adds to the stock’s appeal as a defensive investment. The company’s ability to generate consistent cash flow allows it to maintain and potentially grow its dividend over time.

Given its stability, pricing power, and limited exposure to international trade risks, Loblaw remains an attractive option for investors looking for a defensive stock. While its valuation is on the higher side, its strong fundamentals make it a reliable choice for those seeking a low-risk investment in uncertain economic conditions.