As the Market Heads for a Downturn, This Is Where Investors Can Hide!

With the chance of a slowdown very high, investors need to begin hiding money in Royal Bank of Canada (TSX:RY)(NYSE:RY).

| More on:

In spite of many investors searching for hot stocks, the reality is that a bottom-up approach may not always be the best way to go about it. In reverse, the top-down approach starts with understanding the general economy, then the sector, and finally the individual security that one wants to invest in.

As a great investor once said, “a rising tide lifts all boats,” which translates to an improving economy being good for all sectors. Unfortunately, the current state of the economy (which many think is doing extremely well) is not indicative of better economic times in the future. In fact, record-low unemployment is a leading indicator for a downturn in the economy.

There are a number of factors confirming that we are at the tail end of an economic cycle, so investors may be best suited to take refuge in a few defensive names and enjoy collecting dividends along the way. To begin with, Canada’s biggest bank by market capitalization, Royal Bank (TSX:RY)(NYSE:RY), just increased the dividend to offer a yield of almost 3.8%. In addition to this, the well-diversified business lines will offer downside protection in the event of an economic downturn.

For investors looking beyond the financial sector, shares of Canadian Pacific Railway (TSX:CP)(NYSE:CP) are in a unique position to continue turning out profits and buying back shares throughout all phases of the economic cycle. At a current price of $265 per share, investors have been well rewarded over the past year. With momentum on their side, this name has a lot to offer investors who are seeking safety. After all, this is one of the most defensive businesses around.

The last name on the list is none other than Cineplex (TSX:CGX), which recently reported earnings that led shares higher. As history has shown on many occasions, difficult economic times have led many to skip the dinner part of the “dinner-and-a-movie” date, opting instead for the movie only. At a current price of almost $33 per share, the dividend yield is a comfortable 5.3%, which is expected to be sustained for a long time to come.

As opportunity sometimes presents itself during difficult periods, this may be the chance for the theatre industry to reinvent itself once again, this time figuring out how to keep people in the building for a longer period of time and potentially receiving a greater amount of their disposable income. Time will tell if we one day we see a bar in each movie theatre.

As the bull market continues to age every day, investors need to remain very cautious. In spite of many promises from our politicians, the reality is the raising of interest rates will bring on the inevitable: a major pullback!

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 Ryan Goldsman has no position in any of the stocks mentioned.

More on Investing

Businessman holding tablet and showing a growing virtual hologram of statistics, graph and chart with arrow up on dark background. Stock market. Business growth, planning and strategy concept
Dividend Stocks

3 Canadian Dividend Stocks to Buy Hand Over Fist

These three Canadian dividend stocks each offer a unique opportunity, making them some of the best investments to buy at…

Read more »

Chalk outline of two arrows pointing in opposite directions
Top TSX Stocks

2 TSX Stocks That Can Deliver Massive Gains in a Recession

Restaurant Brands International (TSX:QSR)(NYSE:QSR) stock and another recession-resilient firm that can win big in 2023.

Read more »

Growing plant shoots on coins
Stocks for Beginners

For New (and Old) Investors: 3 Dividend-Paying ETFs With Lower-Risk Profiles

Three dividend-paying ETFs with lower-risk profiles are suitable for new and old investors alike.

Read more »

Hand holding smart phone with online shop concept on screen
Tech Stocks

Is Now the Time to Buy Shopify Stock?

Shopify stock (TSX:SHOP)(NYSE:SHOP) hasn't hit these lows in years. So is it a great time to buy the dip, or…

Read more »

A person builds a rock tower on a beach.
Dividend Stocks

Retirement Wealth: 2 Oversold Canadian Stocks to Buy Now and Own for Decades

These industry-leading dividend stocks look cheap right now and have increased their distributions annually for decades.

Read more »

money cash dividends
Tech Stocks

Got $1,000? 3 Cheap Stocks to Buy Right Now

If you've got cash on the sidelines that you're looking to put to work, here are three cheap stocks that…

Read more »

Tired or stressed businessman sitting on the walkway in panic digital stock market financial background
Dividend Stocks

2 of the Safest TSX Stocks Right Now

The stock market is heading towards a crash. Investors are seeking the safety of dividends, and these two stocks provide…

Read more »

question marks written reminders tickets
Tech Stocks

Nvidia Stock Is Down 60%: Should You Buy?

Nvidia (NASDAQ:NVDA) stock has slipped over 60% as short-term headwinds hurt its revenue. But a long-term view of the stock…

Read more »