Unless the world’s two largest economies reach a trade accord soon, there would be severe recessionary implications on Canada. With a low 1.3% economic growth projection this year and a marginal rise to 1.5% in 2020, the country is teetering toward a bear market.
Should a global recession take root next year, economic growth could fall below 2.5%. If you’re an investor, you need to prepare and play defence. The suggested course of action is to invest in companies that won’t take a big hit. More so, they should have a history of earnings growth and regular dividends.
The utility sector is a haven during a bear market. Algonquin (TSX:AQN)(NYSE:AQN) can insulate you from a recessionary storm. This $8.89 billion company owns and operates a portfolio of regulated and non-regulated generation, distribution, and transmission utility assets in Canada and the U.S.
What Algonquin does is it generates electrical energy through non-regulated renewable and clean energy power generation facilities then sells it. Also, it owns and operates hydroelectric, wind, solar, and thermal facilities. The combined gross generating capacity of renewable energy assets is 1.5 gigawatts.
The business will not suffer but will see steady, consistent growth in the near, medium, and long term. For the next five years, Algonquin expects a 7.95% annual growth. The company has grown its dividend for the last seven years, and the current yield is 4.03%.
Even if domestic growth is weak, retail and convenience stores are in a position to sustain a growth trajectory. Hence, Couche-Tard (TSX:ATD.B) is a natural shield against a bear market or recession. This $45 billion company has 16,072 stores strewn in North America and Europe.
Couche-Tard operates under the CAPL network, which includes the well-known Circle K branded sites. Since its incorporation in the early 80s, the company grew by making smart store acquisitions.
Over the last five years, the company’s EBITDA posted a 5.1% CAGR. From 2013 to 2018, merchandise and service sales’ CAGR was 11%, while road transport fuel quantity registered 16%. As of the Q3 2019, sales were brisk.
Couche-Tard is not threatened by e-commerce as 83% of in-store merchandise purchased from its stores is usually consumed within 60 minutes. About 65% is absorbed instantly. The dividend is below 1%, but it protects you from a recession.
Defensive investors would pick Canada Goose (TSX:GOOS)(NYSE:GOOS) to counter a perfect storm. This $5.7 billion maker of premium outdoor apparel for men, women, youth, children, and babies has been operating since 1957.
Its two segments — Wholesale and Direct to Consumer (DTC) — comprise 11 retail stores and an e-commerce platform that caters to shoppers in 12 countries. Brand value is what drives its impressive revenue growth. Canada Goose saw its revenue grow by 46% in 2018, with a trailing 12-month gross profit margin of 45.24%.
Canada Goose is a non-dividend payer, but it offers potential capital gain. Despite the headwinds, analysts see the stock climbing by 79.4% in the next 12 months. Its wholesale distribution and its DTC business, whether physical or online, continue to drive revenue growth and enhance margins.
It is for your good to use the recession-proofing investing strategy. Algonquin, Couche-Tard, and Canada Goose are must-have stocks in a bear market.
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 Christopher Liew has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Canada Goose Holdings. The Motley Fool recommends ALIMENTATION COUCHE-TARD INC.