Top stock picks for 2026 from Desjardins

A tug of war between defensive consumer staples and more cyclical discretionary names is expected to persist into 2026, as cautious consumer spending and macro uncertainty continue to shape equity performance, according to Desjardins Securities analyst Chris Li.

In his year-ahead outlook, Li said high-quality defensive names such as Dollarama, Loblaw Companies and Metro are likely to outperform early in the year due to earnings visibility and consistent growth. However, he cautioned that elevated valuations could limit absolute returns as investors potentially rotate toward more cyclical opportunities later in the year.

Li said valuations for several recovery-oriented names already reflect near-term challenges, creating scope for upside as catalysts emerge over the next one to two quarters. Among these are Alimentation Couche-Tard, Premium Brands Holdings and Pet Valu.

Within consumer staples, Li said Couche-Tard’s U.S. merchandise same-store sales growth continues to improve sequentially, supported by foodservice initiatives, loyalty programs and margin gains from reduced shrink. He expects greater visibility on sustainable earnings growth to emerge in 2026, particularly as macro pressures ease and management updates its longer-term strategy. The stock trades at roughly 16.5 times forward earnings, which Li views as attractive relative to peers given its earnings growth profile.

In the grocery segment, Li acknowledged heightened competitive concerns but said fears may be overstated. He noted that promotional intensity has stabilized and that Canadian consumers remain structurally more promotion-driven than their U.S. counterparts. Loblaw’s premium valuation, in his view, is supported by its execution track record, diversified asset mix and earnings visibility, while Empire Company trades at a steep discount that already reflects a more challenging second-half outlook. Metro, meanwhile, is expected to continue delivering steady earnings growth, though limited upside potential keeps its rating at “Hold.”

Among food manufacturers, Premium Brands is positioned for multiple potential catalysts in 2026, including margin inflection, non-core asset divestitures and deleveraging following its Stampede Culinary acquisition. Saputo also remains a “Buy,” with Desjardins citing sustained EBITDA momentum driven by operational improvements, cost efficiencies and recovery in international markets.

In consumer discretionary, Li said Canadian Tire is “controlling the controllables” through margin discipline and cost management, though macro uncertainty could keep the shares rangebound until earnings visibility improves. Dollarama remains a preferred defensive-growth name, with its premium valuation supported by strong same-store sales, international expansion through Dollarcity and robust free cash flow generation.

Fashion retailers Aritzia and Groupe Dynamite continue to command premium valuations, which Desjardins believes are justified by outsized revenue and earnings growth relative to peers. Li raised his target price on Aritzia to $125, citing strong U.S. store expansion, resilient demand and margin expansion potential, while Dynamite’s execution and balance sheet strength underpin expectations for continued double-digit earnings growth.

Desjardins named Gildan Activewear as its preferred idea for 2026. Li said Gildan’s valuation, at roughly 14 times pro-forma earnings, does not fully reflect its expected greater than 20% EPS compound annual growth rate driven by the integration of Hanesbrands, cost synergies, debt refinancing and share buybacks. He expects increased disclosure around integration progress with fourth-quarter results in February to serve as a potential catalyst.

Pet Valu is also viewed favourably despite a softer discretionary backdrop, with Desjardins expecting an earnings inflection in the fourth quarter and high-single-digit EPS growth in 2026 driven by distribution centre efficiencies and capital returns. At roughly 16 times forward earnings, Li sees valuation as attractive relative to grocery peers with similar growth profiles.

Overall, Li said identifying clear winners remains challenging in a mixed macro environment, but he believes valuation discipline, earnings visibility and company-specific catalysts will be key drivers of relative performance across Canadian consumer stocks in 2026.