Risk is mounting, and while Canada’s dollar is strengthening, the situation could turn on a dime. Sure, nobody likes to talk about recession, and some pundits bullish on the economy would have us believe that it’s not even likely.
However, as the China-U.S. trade war grinds on, and central banks around the world cut rates, risk is definitely increasing, and that means that safe stocks could improve over the coming months.
Investor sentiment will push safe-haven stocks higher
Risk abounds in the markets: U.S. manufacturing is technically in recession, which doesn’t bode well for the rest of the country, while Germany teeters on the edge threatening a widespread correction.
While job growth in Canada has been stronger than expected, and the TSX has seen encouraging gains, counteractive warning signs persist. The housing market is slowing, business confidence is faltering, and geopolitical uncertainty is mounting.
A Canadian rate cut isn’t off the cards, as the economy faces growing threats from the outside. However, the problem with low interest rates is that it gives central banks nowhere else to go if the economic outlook worsens. Over in the U.K., for instance, interest rates are already low, meaning that the Bank of England would have few options to stimulate the economy should the country slip into recession. In short, investors will soon flock to safety.
Two stocks to buy before their prices rise
The take-home message here is that some hard times could be on the way, with low-risk investments being the order of the day. Two strong choices to buy before safe-haven investing nudges their prices higher would be Brookfield Asset Management (TSX:BAM.A)(NYSE:BAM) and Fortis (TSX:FTS)(NYSE:FTS).
With $3 billion of capital spread across infrastructure, real estate, renewable energy, and private equity, Brookfield is as defensive and diversified a single investment as one is likely to find on the TSX. Investing others’ funds has proved lucrative, leveraging management expertise to boost its bottom line, and there’s still room to grow through asset expansion.
A round of share buybacks is on its way, which will reward invested parties that have remained loyal through a lucrative period for the asset management company — the last year saw $2.5 billion in free cash flow bless Brookfield’s coffers. A dividend yield of 1.22% makes Brookfield stock a fairly good buy for income investors, though it’s that attractive spread of assets and decent valuation that makes it such a strong buy.
Speaking of value, Fortis compares favourably with its peers, with multiples clocking in below the North American electric utilities averages. Going back to that dividend, a yield of 3.24% is on offer to investors who buy at today’s prices, which are currently a shade below a 52-week high. Portfolio holders with a broad economic horizon may wish to wait for a dip before buying if a richer yield suits their long-term income strategy.
The bottom line
Brookfield Asset Management and other safe-haven stocks such as Fortis are likely to improve as recession fears continue to inject fear into the markets. Both stocks are safe and pay stable dividends that are likely to remain protected even during a lengthy economic downturn.
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Fool contributor Victoria Hetherington has no position in any of the stocks mentioned. The Motley Fool owns shares of Brookfield Asset Management and BROOKFIELD ASSET MANAGEMENT INC. CL.A LV.