This past week has been very unkind to nearly every major index, indicating a full-blown market crash may be upon us. For investors with extremely long-term investment horizons, a market crash is usually just a small blip on the radar.
Some may even use it as an opportunity to double down on positions that have become heavily discounted. In fact, staying invested and even adding to positions has proven to be a winning formula in the long run.
However, a substantial downturn can be devastating to investors with shorter investment timelines, such as soon-to-be retirees, as prices may not fully recover by the time the investment must be liquidated. Hence, for those investors, being defensive by hedging risks is a prudent move to make.
Adding defensive stocks can help shield a portfolio from the short-term downside risk present in the market. Stocks in the consumer staple and healthcare sectors are generally thought to be defensively-positioned stocks.
After all, people still need to buy groceries and get medication regardless of the state of the stock market. Today, we’ll take a look at a Canadian stock that offers both of those services and can help stabilize a portfolio in the face of a bear market.
Defend against a crash with Loblaws
Loblaw Companies (TSX:L) is a leading Canadian grocery and pharmacy company. With a market cap of just over $26B, it’s the largest Canadian grocer. Loblaw’s has pharmacies within most of its grocery stores, and also owns the Shoppers Drug Mart pharmacies.
Loblaw recently reported Q4 2019 results, posting a year-over-year increase in revenue of 3.3%, and a year-over-year increase in operating income of 21.6%. The company’s solid financials and strong foothold as Canada’s premier grocer gives it solid positioning for any market turbulence.
During a market crash or recession, people tend to spend less on luxuries and non-essential goods. Given that pharmacy and grocery purchases are not frivolous, earnings through a market crash should be as durable as you can find.
Loblaw also offers online shopping options, which are ideal for customers minimizing their public outings amid concerns around coronavirus.
With an estimated beta of 0.37, the stock price tends to not follow the big swings of the market. Investors can take solace in the fact that while markets were down last week, Loblaw traded up.
The stock was trading at $66.86 on Monday morning, closing at $72.35 on Friday. If fears continue to mount in the market, look for even more upside in share price as investors flee to defensive stocks.
The company also currently offers a 1.75% dividend yield. While this is certainly not an eye-catching figure, the payout should be safe regardless of market conditions.
Plus, with the recent interest rate cut, it probably beats any one-year GIC or similar product that short-term investors might be considering.
The bottom line
Loblaw is a top defensive stock poised to outperform a bear market. The company can rely on its strong grocery and pharmacy presence to weather the storm of a tough market, as those revenue streams should be highly durable.
Over a long-term investment horizon, Loblaws would likely underperform compared to top growth or dividend stocks. But short-term investors looking to protect their portfolio in a risky market should certainly consider Loblaw.
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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 Jared Seguin has no position in any of the stocks mentioned.