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

Payday ringed on a calendar
Dividend Stocks

3 Top TSX Passive-Income Stocks That Pay Out Every Month

Here are some of the best TSX stocks for passive monthly income. Investors should explore to see if they're a…

Read more »

edit Sale sign, value, discount
Dividend Stocks

3 Remarkably Cheap TSX Stocks to Buy Right Now

These three cheap TSX stocks are some of the best buys on the TSX, and yet their share price is…

Read more »

think thought consider
Dividend Stocks

This Dividend Stock Could Create $1,353 in Passive Income in 2024

This dividend stock can create massive passive income from two sources, so don't miss out before a recovery in 2024!

Read more »

Increasing yield
Dividend Stocks

TFSA Investors: Buy This Top Bank Stock for High-Yielding Dividends

Generate a superior passive-income stream by investing in this high-yielding dividend stock from Canada’s Big Six banks.

Read more »

grow money, wealth build
Dividend Stocks

2 of the Best TSX Dividend Stocks I Plan on Holding Forever

High-yield TSX dividend stocks, such as Enbridge, offer you tasty yields and trade at significant discounts to consensus price targets.

Read more »


CNR Stock: Should You Buy Today?

Canadian National Railway has been hit in recent quarters, as economic growth has slowed, with CNR stock declining 10% in…

Read more »

Family relationship with bond and care
Dividend Stocks

TFSA Investors: 3 Cheap Canadian Stocks for Retirees

These three Canadian stocks are super cheap for retirees looking for a great buy that will last the test of…

Read more »

calculate and analyze stock
Dividend Stocks

CPP Disability Benefits: Here’s How Much You Could Get

Not everybody can get CPP disability benefits. If you want some passive income, consider investing in Royal Bank of Canada…

Read more »