The Motley Fool

2 Assets to Hide in as the Market Crashes!

Businessman looking at a red arrow crashing through the floor
Image source: Getty Images.

Here we go again!

The stock market took several significant backward steps after barely touching all-time highs courtesy of an abysmal U.S. manufacturing report, as the Trump impeachment process continues to unfold in the background. Those worried about a recession are now hitting the panic button with the worst start to the fourth quarter since the 2007-08 financial disaster.

It’s anything but a disaster though, even though it may seem like the sky is falling, as your favourite stocks shed triple digits. Like it or not, both the S&P 500 and TSX Index are still within 5% of their high, and although the negative momentum has picked up in October, the biggest risk right now is being out of the market, not in it.

As bond yields continue to sink, the bluest of blue-chip dividend stocks and defensive high-yield REITs are still the best place to hide if you’re worried about the bear’s awakening after a decade-long hibernation.

A super-blue blue-chip to buy

For those looking to bag a bargain amid the last round of selling, consider blue-chip defensive darlings like Telus (TSX:T)(NYSE:TU), which is now off 7% from its summer high due to a broader sell-off in the telecom sector. Telus has a bountiful 4.8% dividend yield and is one of the few stocks that’s in the green for the week.

While Telus doesn’t have the same growth engine it did coming out of the depths of the Financial Crisis, it still has one of the most stable dividends in town, and even with rising competition in the telecom scene, I see continued dividend growth as the economy falls into recession.

And despite the recent rotation into high-yield defensive stocks, Telus is still modestly priced at just 15.4 times next year’s expected earnings and just under two times sales. Given Telus has already corrected over the last few months, the stock will also be less correlated to the broader markets over the next month, and that’s a big plus for retirees who’ve been cringing at the latest market moves.

A REIT that couldn’t care less about an economic downturn

For those who are looking to rotate capital out of equities and into low-beta alternative assets, there are the REITs. Now, not all REITs are built the same. Some are more recession-proof than others, so it pays dividends to look to real estate sub-industries that are better equipped to deal with times of recession.

For example, auto dealership REITs and office REITs aren’t going to hold their own as well as more stable residential or healthcare REITs.

In a recession, layoffs happen and discretionary spending plummets, neither of which bode well for auto or office REITs, especially the ones with leases that’ll be expiring soon. Residential and healthcare REITs will likely suffer minimal downside because people need a place to live, and tough times aren’t going to stop the masses from getting sick. If anything, they’ll get even sicker during times of economic hardship.

Canadian Apartment Properties REIT (TSX:CAR.UN), or CAPREIT for short, is my top dog for investors looking to hide out in residential real estate. Despite the sluggish economy, CAPREIT sports enviable occupancy rates thanks to its exposure to two of the hottest real estate markets on the planet.

With ample residential properties within Vancouver and Toronto, which are suffering from a severe rental unit supply shortage, CAPREIT calls the shots and can command substantial rent increases with minimal additional spend.

When you’ve got a front-row seat to hot markets as CAPREIT does, you don’t need to actively search for tenants, regularly renovate units, spruce up old units, or spend money on amenities. The savings go into the development of new properties, which will give investors the best ROE, as CAPREIT looks to expand its AFFO as quickly as possible to capitalize on its fortunate positioning.

With the massive amount of foreign money in Vancouver real estate, it’s not a mystery as to why the average Canadian can’t afford to pay their rent. The rental state of emergency isn’t going away, even if a recession were to hit tomorrow, so CAPREIT investors will be poised to do well as the economy crumbles like a paper bag.

Stay hungry. Stay Foolish.

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 Joey Frenette has no position in any of the stocks mentioned.

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