Market corrections often come when they’re least expected. They can wreak havoc on your portfolio.
While most investors seek to grow their capital as quickly as possible, protecting yourself from losses is just as valuable. In fact, there’s one stock on this list that has minted money for investors by avoiding market-wide collapses.
If you want to protect your portfolio from the next market correction, take a look at these stocks immediately.
Fairfax Financial Holdings
This is perhaps the gold standard of this list. Founded by veteran investor Prem Watsa — who many call the Warren Buffett of Canada — Fairfax Financial (TSX:FFH) has a track record beyond reproach.
This stock is essentially a mini Berkshire Hathaway.
Fairfax Financial is a holding company that owns interests in a wide variety of businesses from insurance providers to software designers. Watsa uses the cash generated by these businesses to invest in new opportunities nearly every year.
Through its ownership of Fairfax Africa Holdings and Fairfax India Holdings, the company also has exposure to some of the biggest growth opportunities on the planet.
The best characteristic of this stock, however, is its ability to resist bear markets.
“From August 2008 to February 2009, the S&P/TSX Composite Index lost more than 30%,” I wrote recently. “Fairfax Financial stock, meanwhile, gained 30%.”
Only a handful of stocks can match this impressive track record.
Quebecor
Founded in 1965, Quebecor (TSX:QBR.B) has a dominant position in its home market of Quebec.
A leader in media, the company owns the well-known telecom provider Vidéotron. Through its ownership of Groupe TVA, the company has a 37.7% market share for television, with 14 of the top 30 shows in Canada airing on its platform.
It’s important to note that due to its focus on Quebec, there isn’t much growth to be had. Over the last 10 years, revenue growth has averaged just 0.5% per year. Net income growth is also roughly flat.
However, the same factor that limits growth also provides valuable downside protection.
Over the last five years, Quebecor has demonstrated a beta of just 0.22 times the market. That means the stock is roughly 80% less volatile than the market. Strong offerings and high renewal rates contribute to this stability.
Last quarter, the company announced a 100% increase to its quarterly dividend, signaling confidence in its long-term strategy of Quebec dominance. Again, this stock doesn’t have as much upside as Fairfax, but it should perform similarly well during a market downturn.
SmartCentres REIT
Here’s a low-volatility stock with an impressive dividend and reasonable valuation.
Over the last five years, SmartCentres (TSX:SRU.UN) stock has nearly always ranged between $30 and $35 apiece. While there hasn’t been much long-term growth in the share price, the company’s consistent 5.5% dividend has kept investors appeased.
This stability is due to the company’s unique business model.
SmartCentres focuses on retail real estate — with a twist. Nearly all of its properties are anchored by Walmart stores. In fact, it’s Walmart’s biggest landlord in Canada.
Because Walmart is a well-financed, heavily trafficked retailer that rarely moves locations, SmartCentres has a tenant base that can stick around for decades or more. Plus, Walmart is one of the biggest grocers in North America, so its business model is fairly resilient during economic turmoil.
During the next bear market, expect this stock to decline significantly less than other stocks. During bull markets, anticipate a small, but reasonable return of around 5-6%, the bulk of which will be delivered via dividends.
