Statistics Canada recently revealed that Canada’s economy contracted 0.1% in November 2018, which was in line with expectations. The Bank of Canada projected that the annualized pace of growth would slow to 1.3% in Q4 2018, which was part of its justification for pressing the pause button on an interest rate hike.
The Bank of Canada has forecasts that this weakness will spill over into the first quarter of 2019. However, the central bank also projects that the economy will bounce back in the second half of the year on strong job creation and investment. This is encouraging, but growth is expected to hover below the 2% mark into 2020 and perhaps beyond.
In late January I’d discussed strategies for conservative investors in this environment. Today I want to focus on two stocks that are appropriate additions to a TFSA that aims to be recession-resistant.
Barrick Gold (TSX:ABX)(NYSE:GOLD)
My top stock pick for the month of January was Barrick Gold. The spot price of gold posted strong gains in the first month of the year, but Barrick Gold struggled in the middle of the month. The company managed to recoup some of these losses late into January, but is still trading more than a dollar off its 52-week high.
Barrick stock picked up solid momentum in late 2018, so a mild pullback was to be expected. The stock currently boasts an RSI of 58, indicating that it is outside of overbought territory as of close on February 6. The S&P/TSX Composite Index has picked up huge gains in early 2019, and many stocks in the mining sector possess pricey valuations right now.
Barrick is not quite cheap at its current price, but as the largest gold producer in the world it is as good a bet as any to thrive due to higher spot gold prices. A dovish turn from the US Federal Reserve is a bullish sign for gold, as are economic headwinds that will be an impediment to growth going forward.
CAE stock has climbed 10.7% in 2019 as of close on February 6. Shares are up 26% year over year. The stock last paid out a quarterly dividend of $0.10 per share, representing a modest 1.3% yield.
CAE is an attractive target in this environment due to its exposure to steadily growing sectors. Its exposure to the defence sector is of interest for us today. CAE has won major contracts, with the U.S. and Canadian militaries in recent years, and increased spending from both entities into the next decade will guarantee solid revenue growth going forward. Canada is expected to increase its defence spending by 70% into 2026. The United States already hit $716 billion in spending in 2018, and experts are projecting that the 2019 budget could hit a stunning $750 billion.
CAE is a stock to monitor in early February. Shares recently fell out of technically overbought territory and now boast an RSI of 63. Investors looking to add CAE should keep their eyes on the stock and look to stack at more favourable price levels early this year.
