3 Top Stocks to Protect Your Portfolio Right Now

The market is tanking! Here are three stocks, including Loblaw Companies Ltd. (TSX:L), that can protect you from the pain.

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Hello again, Fools. I’m back to highlight a few stocks that display low volatility relative to the overall market (i.e., low-beta plays). As a refresher, I do this for conservative investors because low-beta stocks

  • typically represent ownership in highly stable businesses;
  • are a great way to shield your portfolio from big market dips (like the ones we’ve been seeing of late); and
  • actually tend to outperform high-beta stocks over the long run.

Contrary to popular financial belief, stocks with low volatility actually offer a better risk/reward trade-off than high-volatility stocks due to the “low-beta anomaly.”

So, without further ado, let’s get to this week’s list.

Tummy-friendly tech

Kicking things off is CGI Group (TSX:GIB.A)(NYSE:GIB), whose shares sport a beta of 0.6 — or about 40% less volatility than the overall market. The IT services giant is up 17% year to date versus a gain of 11% for the S&P/TSX Capped Information Technology Index.

CGI might operate in the ever-changing tech space, but the recurring nature of its business model provides plenty of cash flow stability. In Q2, revenue clocked in at $2.9 billion as operating cash flow increased 9% to $317.3 million. Management also posted bookings of $3.5 billion, along with a whopping backlog of $22.4 billion.

Over the past five years, CGI has grown its operating cash flow 175%.

When you couple that fundamental strength with the stock’s price smoothness, CGI is certainly worth checking out.

Presidential choice

Next up, we have Loblaw Companies (TSX:L), whose shares have a three-year beta of 0.7, or about 30% less volatility than the overall market. Year to date, the food and pharmacy company is down 4% versus a loss of 6% for the S&P/TSX Capped Consumer Staples Index.

Loblaw is perfect play on the fact that people will always need food and medicine. Over the past 12 months, the company has generated $46.5 billion in revenue, along with $1.7 billion in free cash flow. More importantly, management has used its cash to repurchase shares — 4.6 million in Q3 alone — and dole out growing dividends to shareholders.

With a forward P/E in the low teens and decent yield of 1.9%, Loblaw looks like reasonably priced way to add portfolio safety.

Extended opportunity

Rounding out our portfolio protectors this week is Extendicare (TSX:EXE), which currently boasts a beta of just 0.3 — or about 70% less volatility than the market. Year to date, the senior home operator is down 17%, making it an opportune time to get in on the action.

Despite Bay Street’s bearishness, Extendicare continues to benefit from the ever-growing demand for retirement living. Over the first six months of 2018, operating income is up 5% on margins of 11.9%. Moreover, the company’s available funds from operations (AFFO) — a key metric in the real estate business — is up $4.7 million at $31.8 million.

Right now, the stock yields an attractive 6.5%, which seems pretty safe considering that the payout still represents a comforting 67% of AFFO. In other words, I wouldn’t wait too long to lock it in.

Fool on.

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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.

Brian Pacampara owns no position in any of the companies mentioned. CGI Group and Extendicare are recommendations of Stock Advisor Canada.

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