Against the backdrop of the recent COVID-19 outbreak, stocks have been nosediving into a market crash. In addition, global economies overall are grinding to a halt to impose social distancing.
During these times, investors lose confidence in some equities and look to liquidate their portfolios. However, by keeping skin in the game, you win in the long run.
Now, it’s important to position a portfolio in such a way that it proves resilient to these conditions. One of the best ways to do so is by purchasing shares of defensive stocks.
Namely, consumer staple stocks tend to outperform the market during a recession and market crash, as the demand for consumer staple goods is constant (or even increases) during these tough times.
Today, we’ll take a look at two TSX consumer staple stocks that are built to ride out a market crash.
Safety with Loblaw Companies
Loblaw (TSX:L) is Canada’s premier grocery and pharmacy service provider. It operates grocery stores under many different titles (NoFrills, Zehrs, Loblaws) and also operates Shoppers Drug Mart.
Of course, even during these tough times, people still need to buy food and get their medication. As the biggest player in that space in Canada, Loblaw stands to keep its earnings healthy even during a market crash.
The company has vowed not to raise a single price, and has even waived fees for pick-up orders. Loblaw is doing what it can to help curb the spread of COVID-19, while still providing essential services to Canadians.
For investors, Loblaw offers a modest but stable dividend yield of 1.9%. This cash flow would at the very least beat out a savings account in this low rate environment. Plus, you have the upside in share price as Loblaw continues to out-perform the market.
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Buy Dollarama in a market crash?
Dollarama (TSX:DOL) is a Montreal-based company that operates 1,250 dollar stores across Canada. Dollar stores have been deemed an essential business and as such are staying open through the outbreak.
Dollarama owns a huge chunk of the market share in Canada. For many, it’s the go-to dollar store.
With even more layoffs unfortunately on the horizon, people will be looking for ways to pinch some pennies. With inexpensive canned goods, soda, and other non-perishables on offer, Dollarama provides Canadians a more affordable way to shop during a recession. Dollarama could see an increase in demand in the coming months.
It’s also entirely possible that smaller dollar stores won’t be able to weather the storm, and Dollarama can thus gain even more market share.
Now, even with the market crash, Dollarama’s dividend yield is only 0.45%. So, investors won’t be able to generate decent cash flow from this stock.
However, growth potential for the reasons stated above might be able to push the share price a lot higher. Analysts at TD Securities even upgraded the stock from hold to buy on March 25th, with a $48 price target. Dollarama currently trades at $39.70 as of writing.
The bottom line
A market crash can be a scary time for investors. However, by scooping up shares of defensive stocks, investors can weather the storm.
In particular, consumer staple stocks tend to outperform the market during a recession. For Canadians, Loblaw and Dollarama are two of the best consumer staple stocks on offer.
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.