As the COVID-19 pandemic spreads and wreaks havoc across the world, global markets are tumbling. Canada’s unemployment rates are soaring with around 500,000 jobless claims being filed just this past week. It shows that the Canadian economy is in a deep rut, and entire sectors are shutting down due to the coronavirus.
Canada seems like it is heading towards what surely could possibly be the worst recession in recent history. It might be worrying investors about how they can protect their capital and whether the market will recover.
Liquidity and aid failing to produce results
Justin Trudeau’s government is facing an unprecedented situation. In light of the developing COVID-19 pandemic situation, the government and Bank of Canada announced measures to keep Canada from slipping into a recession. The government unveiled plans to inject hundreds of billions of dollars into the economy to aid liquidity. The Bank of Canada already announced interest rate cuts and further rate cuts might be on the way.
It is likely that we might see an announcement for the airline and energy sector companies being bailed out in the coming days. The tourism industry is taking a hit because of the necessity of social distancing. The energy sector had already been suffering due to low crude oil prices, as Russia and Saudi Arabia, along with other OPEC+ producers, fell out of favour with each other.
As the $82 billion in direct aid by the Canadian government and record-low oil prices continue to devastate the economy, further actions might be critical in supporting the economy.
Fortis is a significant operator in Canada’s utility sector. The stock was trading for around $58 early in March. The broader market pullback hit Fortis; the stock traded as low as $42.20 on March 23, 2020. At writing, the stock is back on an upward trend, as it trades for $51.55 per share.
It seems like the sell-off for Fortis was overdone, and the stock is back on a path to recovery. The company owns over $50 billion in utility assets across the United States, Canada, and the Caribbean. Its operations include producing electricity, electric transmission, and the distribution of natural gas. These are all businesses known to weather economic recessions better than others.
The demand for Fortis’s commercial clients might drop due to the massive unemployment rates, but its residential business can likely proliferate. Millions of people are working from home. The demand for utilities never diminishes, despite worsening economic circumstances. The company has a chance to grow revenue during the crisis where other businesses are dwindling.
The S&P/TSX Composite Index rose 17,02% from March 23, 2020, to March 25, 2020. It seems that the TSX is showing signs of life. The Fortis stock rose 22.16% in the same period. The stock could be doing better than the broader market.
The Fortis board raised its dividends for the past 46 years, and there is no reason why it might break its dividend-growth streak this year. I think a stock like Fortis might be an excellent place to park your capital during the volatility that the coronavirus crisis is creating.
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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 Adam Othman has no position in any of the stocks mentioned.