1 Premier Utility That Will Vastly Outperform the Market in Times of Turmoil

There’s a high probability that a stock like Fortis Inc. (TSX:FTS)(NYSE:FTS) will crush the market over the next three years as the risk of recession rises.

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After a tumultuous October and November, it certainly feels like the bull market is on its death bed. The stocks of many market darlings are already deep in bear market territory, and with talking heads on mainstream financial TV shows calling for more blood in the months ahead, it’s not a mystery as to why retail investors are ditching their stocks to the curb in droves.

It’s hard to believe that the S&P 500 and TSX are only down 10% from their peak levels, and it’s even harder to believe that everybody was so bullish and euphoric at the start of the year, with pundits calling for a “market melt-up” and a “once-in-a-lifetime” opportunity to make a killing in the market thanks to the stimulative effects of Trump’s pro-growth fiscal policy.

After suffering yet another correction, pundits have announced that dip-buying is dead. Buying the dip has paid off big-time in the past, but it’s not working anymore. As you’d imagine, this kind of negative headline is grabbing the attention of investors, but before you decide to pause your dip-buying activity, you may want to consider re-balancing your portfolio if you haven’t done so already.

Earlier in the year, I’d encouraged investors to bet on undervalued utility stocks in spite of them being out of favour due to the negative impact of the rising interest rate environment.

In a market like this, boring is beautiful

While the stocks of many defensive dividend juggernauts like Fortis (TSX:FTS)(NYSE:FTS) have recovered a bit over the last few months due to the rotation back to “safe” names, I still think it’s worthwhile to punch your ticket to the dull regulated utility, especially if you find you’re overweight in cyclical names that have been clobbered in recent months.

Fortis is still undervalued, and the assurance of a 5% dividend hike per year is that much more valuable in times of great uncertainty. The higher interest rate environment may make Fortis’s dividend less valuable, but given the increased probability of a recession and a potential reversal in the trajectory of interest rates, Fortis and its stable dividend may be worth a lot more than meets the eye.

The stock trades at a 17.2 forward P/E, a 1.4 P/B, and a 6.9 P/CF, all of which are lower than the company’s five-year historical average multiples of 21.7, 1.5, and 7.9, respectively.

Moreover, you’re getting a high degree of growth for a company that’s as stable as Fortis is. The company has seen its top- and bottom-line growth numbers accelerate over the last 10 years, allowing management to continue to sustainably grow its dividend with a conservative payout ratio.

Stay hungry. Stay Foolish.

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 Joey Frenette owns shares of FORTIS INC.

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