Yesterday was a brutal day for the TSX, which plunged 1.5% in the middle of the day, erasing the gains it had made in June and July. The sell-off came after an even worse day for the Dow and S&P 500, which plunged on Monday after China and U.S. President Trump exchanged barbs on trade.
The recent China/U.S. drama concerns tariffs and exchange rates. Earlier this month, China allowed the Yuan to depreciate to seven U.S. dollars, a psychologically significant level.
President Trump took this as a sign of active currency manipulation, promising another round of tariffs that would effectively tax all Chinese exports.
Although Chinese and U.S. markets were the two most affected by the spat, markets fell worldwide.
The latest trade-related sell-off comes at the same time as recession worries are growing more pronounced. We’re at the tail end of a basically uninterrupted 10-year North American economic expansion — one of the longest in history.
The prospect of all that ending while trade simultaneously slows down is a worrying one. If you’re concerned about that, here are three stocks that may provide some safety.
Dollarama Inc (TSX:DOL) is a discount retail store that has built up a huge presence nationwide. Through the 2010s, the company grew from its base in Quebec to become a national behemoth.
More recently, the company’s growth has been slowing down, with earnings up just 6.5% in the most recent quarter (20%+ was previously the norm).
However, the company may be a good recession pick because of its business niche. Dollarama is a retailer that sells ultra-cheap products, which makes it an attractive place for people to shop in times of economic hardship.
Its food offerings, while limited, are very cheap compared to the same items in grocery stores, which could result in Dollarama stock popping during a serious economic downturn.
Utility companies sell electricity, one of the most basic things people depend on for daily life, so their earnings tend to be reliable even in economic downturns.
Fortis has an uninterrupted 45-year streak of raising its dividend, which means that it has consistently raised its payout–even during recessions.
Turning away from the TSX for a minute, we can turn to Wal-Mart Inc (NYSE:WMT). Wal-Mart is another discount retailer, and in fact, the largest discount retail chain in the world. In recent quarters, Wal-Mart’s growth has been rather slow.
In Q1, for example, sales grew by just 1%, while operating income declined 4.1%. In the very best of economic times, there are better stocks you could buy. However, because of its ultra-low prices, Wal-Mart thrives during recessions.
In 4Q 2008, near the start of the late 2000s economic crisis, Wal-Mart’s sales grew modestly at 5.2% year over year, while same store sales rose by 1.6%. This could make Wal-Mart a good recession pick, but not necessarily one to hold when the going is good.
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Stock #1 is a household name – a one-time TSX blue chip that too many investors have left sitting idly in their accounts, hoping the company’s prospects will improve (especially after one more government bailout).
Still, our analysts rate this company a firm SELL.
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Fool contributor Andrew Button has no position in any of the stocks mentioned.