Are Jittery Investors Missing Out on These Defensive Stocks?

Here’s why stocks like TransAlta Renewables Inc. (TSX:RNW) might be just right for nervous investors eyeing a rocky 2019.

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Retail, autos, gold, and renewable energy make an interesting blend of consumer cyclical and recession-ready industries, and a group of representative stocks would add ready diversification to a dividend portfolio. But are they beyond the ordinary scope of defensive TSX index investors? Below we will take a look through the vital stats for a few tickers that represent this handful of sectors in order to ascertain the strength of their buy signals.

TransAlta Renewables (TSX:RNW)

With a high one-year past earnings-growth rate that far exceeds its own pedestrian five-year average of 7.5%, TransAlta Renewables is the outperforming TSX index green-power stock you didn’t know you needed. It’s fairly healthy, carrying threshold-level debt at 44.1% of net worth, and it’s fairly valued, with a P/E of 17.7 times earnings and P/B of 1.4 times book around market weight.

If you’re looking for a reason to buy this ethical investors’ favourite, look no further than a chunky dividend yield of 7.67% — though with just under two weeks until it trades ex-dividend, you’ll have to make a snap decision if you want to be in line for its next payment. An 8.2% expected annual growth in earnings is on the low side but signals a stock that’s still on the up.

Linamar (TSX:LNR)

Trading at book price and with a 31% discount against its value as per future cash flow, Linamar is one of the biggest auto parts stocks on the TSX index. It’s got a decent track record, with a 13.5% 12-month earnings growth just below its five-year average and pays a small dividend yield of 0.92%. Multiples such as its P/B ratio and a low P/E of 5.6 times earnings suggest undervaluation, as does that deep discount

While its outlook is also on the low side at 0.6% expected annual growth in earnings, Linamar insiders have picked up more shares than they sold by in the last few months, and in substantial volumes.

Barrick Gold (TSX:ABX)(NYSE:GOLD)

More shares have been bought than sold by Barrick Gold insiders in the past three months in significant volumes; indeed, the past 12 months has seen solid inside buying. Down 9.43% in the last five days, it even looks as though there’s a possible value opportunity in this popular TSX index mining stock.

Barrick Gold’s positive five-year average past earnings growth of 56.6% mitigates a negative past 12 months, and it pays a dividend yield of 1.28% backed up with a noteworthy 91.4% expected annual growth in earnings.

North West Company (TSX:NWC)

Affordable grocery retail has to be one of the mainstays of a comprehensive defensive stock landscape, and North West Company has to be one of the most attractive on the TSX index. It’s a high-quality stock, with a 22% past year ROE and a good year under its belt (see a one-year earnings-growth rate of 33.6%). Though its balance sheet may not be the best (North West Company carries 94.4% debt), and its P/B of 3.9 times book suggests overvaluation, its dividend yield of 3.96% may make a suitable addition to a passive-income portfolio.

The bottom line

Though there may be pitfalls to picking up consumer cyclical stocks ahead of a potential market downturn (for instance, North West Company’s projected 14.4% drop-off in earnings), the TSX index holds a range of stocks that may offer hidden defensiveness. Groceries, precious metals, auto parts, and energy producers are all core facets of a functioning modern society, and as such are likely to weather a potential recession.

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 Victoria Hetherington has no position in any of the stocks mentioned.

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