Broader indexes are trading 25% below record highs, wiping off billions in investor wealth. The COVID-19 pandemic has led to widespread panic among investors due to a significant decline in consumer spending that might drive global economies into recession.
I have identified three TSX stocks that can be considered by a risk-averse investor in a market that is expected to be volatile in the near term.
A utility giant
Utility companies are the perfect defensive buy. These companies provide services that cover the very basic necessities. Consumers are unlikely to delay spending here and will continue to pay their electric and gas bills.
Fortis (TSX:FTS)(NYSE:FTS) is one such utility giant that is recession-proof. It has a huge presence in North America and is a leader in the regulated electric and gas utility segment. The company serves over three million customers in 17 jurisdictions throughout the United States, Canada, and the Caribbean.
Fortis shares are currently trading at $51.52, which is 13% below its 52-week high. The stock has a forward yield of 3.7%, and the company aims to increase dividends by an annual rate of 6% till 2024. Over 99% of company assets are regulated, which will help Fortis sustain cash flows and continue to pay dividends.
In a bear market that is driving stocks lower, companies like Fortis are an ideal bet in the current downturn.
A gold stock
Gold mining companies are considered safe alternative investments in a recession. Investors tend to pull out money from traditional avenues and shift it into safe havens such as gold. Kirkland Lake Gold (TSX:KL)(NYSE:KL) is one such gold mining company. It is trading at $44.76, which is 34% below record highs.
The company is virtually debt-free and has increased its production capacity from 313,000 ounces in 2016 to 975,000 ounces in 2019, while production costs have fallen from $906 per ounce to $564 per ounce in this period.
The stock has made a stellar comeback and is up 74% from its 52-week low of $25.19 it touched in the last month. In the last five years, the stock has returned an astonishing 1,900% driven by a significant uptick in the price of the yellow metal.
Despite this massive gain, Kirkland Lake Gold is trading at a low forward price-to-earnings multiple of 11. It has a forward yield of 1.6%, and with a payout ratio of just 6%, it can easily double or triple dividend payments in the future.
A transportation heavyweight
Another relatively safe bet in the ongoing bear market is Canadian National Railway (TSX:CNR)(NYSE:CNI). This Canadian-based company operates around 20,000 route miles of track in North America. It is, in fact, the only network that connects three ports in the continent.
While several businesses will be heavily impacted due to the COVID-19, CN’s robust transportation network will remain critical to moving essential goods in these critical times. CN transports close to $250 billion worth of goods annually across several sectors, including forest products, fertilizers, crude oil, automotive, and consumer goods.
CN stock is currently trading at $108.71, which is 15% below record highs, increasing the dividend yield to 2.2%. The stock has been a massive wealth creator for long-term investors. An investment of $5,000 in the stock would have returned $110,000 today, including dividend reinvestments.
CN is expected to experience a revenue decline in 2020 but the company will recover at a rapid pace once the broader markets rebound. It will also benefit from low fuel costs and interest rates, allowing it to weather the current demand environment.