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Avoid the Market Chaos With Shaw Communications Inc. and The Jean Coutu Group (PJC) Inc.

For investors, it’s scary out there.

Since the summer, the TSX Composite Index has been taking punch after punch right on the chin, being sent reeling each time. Energy is the biggest culprit, with oil’s fall from summertime highs now approaching $50 per barrel. Interest rate sensitive stocks are also tanking, especially REITs. Even the banks have been getting hit lately.

Since peaking at more than 15,600 back in September, the TSX Composite has given up more than 10% to fall below 14,000. And with oil continuing to look weak, who knows how far the decline could worsen. Lower oil could lead to lower economic growth, which leads to a lower stock market. It’s a vicious cycle.

Of course, I have no idea of where the market is going. Oftentimes, the best time to buy is when everybody is most pessimistic. So I’m not saying you should sell all your stocks and retreat to a bunker with gold bars and canned food. But it’s always a good idea to look at high quality stocks that will hold up even during times of market weakness. Let’s take a closer look at a couple.

Shaw Communications

If you’re anything like me, you’re not giving up your cable TV subscription. I don’t care how bad the economy gets, cable TV is a great cost-effective form of entertainment.

Investors must agree with me, because during this period of market uncertainty, shares of Shaw Communications Inc. (TSX: SJR.B)(NYSE: SJR) have been moving steadily in the other direction. Excluding dividends, Shaw has gained more than 11% over the last three months.

Shaw is the perfect defensive business. It provides cable, satellite, home phone, and internet service to more than 3 million Canadians, almost exclusively in the west. Sure, there are some customers who are ditching cable, but it isn’t a big deal. Not only is Shaw easily able to hike everyone else’s bill to compensate for it, but cable cutters tend to be heavy internet users who have the disposable income to spring for a better internet package.

Shaw has also rolled out a network of wifi hotspots across Canada, which is now over 45,000 locations strong. Having access to reliable internet on the go is a nice perk, and Shaw has noticed an increase in its internet business since it started the rollout.

Finally, Shaw offers investors a generous monthly dividend with a current yield of 3.6%, plus a proven track record of dividend growth.

Jean Coutu

The Jean Coutu Group  (PJC) Inc. (TSX: PJC.A) might be the finest retailer you’ve never heard of, unless you’re from Quebec, where the chain of pharmacies has a dominant position. It also has a smattering of stores in New Brunswick and Ontario, totaling 416 total franchised locations.

Jean Coutu has a couple of great competitive advantages. Like choosing a doctor, the relationship between customer and pharmacist tends to be a long-term one, especially as one gets older and has more ailments. The company also consistently ranks as one of the best brands in Quebec. In a business that’s all about customer retention, Jean Coutu is really good at it.

Plus, the pharmacy business looks to be almost bulletproof. Sales have been remarkably consistent over the last three years, and aging baby boomers aren’t getting any younger. The demographic wave of retiring baby boomers is about to turn into a tsunami, and Jean Coutu is nicely positioned to benefit.

Ever since Loblaw Companies acquired Shoppers Drug Mart earlier this year, rumors have swirled about Coutu being the next on the block. Quebec based grocery chain Metro, Inc. (TSX: MRU) is the most likely suitor, especially considering how both of its main competitors beefed up over the past two years.

Jean Coutu only pays a 1.5% dividend, but dividend growth has been outstanding. Since 2008, the distribution has gone up nearly 20% annually, and the current payout ratio is just 34.1% of net earnings. If you buy today and hold for a few years, I think you’ll be sitting on an attractive yield.

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This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Nelson Smith owns Shaw Communications preferred shares. 

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