Officials are beginning to weigh in on the near-term outlook as the coronavirus crisis continues to decimate the markets. First there was the Great Depression. More recently, we had the Great Recession. And now – the coronavirus recession?
While pundits are divided as to whether we’re in a recession yet, financial leaders have a pretty good idea of what’s coming. “This is a crisis like no other,” IMF’s Managing Director Kristalina Georgieva recently stated. “We have witnessed the world economy coming to a standstill. We are now in recession. It is way worse than the global financial crisis,” said Georgieva.
The head of JPMorgan Chase, Jamie Dimon, concurs. He expects a “bad recession” and 2008-level financial strain. Presciently, the bank’s co-president, Daniel Pinto, warned in 2018 of a 40% correction by 2021, alluding to nervousness in the markets.
At the time, American protectionism was the “big bad.” The trade and oil price wars have since weakened the markets and exacerbated the current situation.
North American governments have yet to declare a formal recession. That’s not to say that investors shouldn’t break out the recession playbook, however. But Canadians — even those reacting to last year’s high levels of uncertainty — should still be wary. This recession, or the one we’re skirting, is already different.
Only buy the best Canadian stocks in a recession
Fortis has a 45-year history of consecutive dividend payments. That’s a long time in terms of a generation, but not when you start looking at time periods stretching back to the Great Depression.
That’s how far back economists are looking for precedent right now. But even if we’re dealing with a recession unparalleled since the 1930s, Fortis has an exemplary stock track record.
Shopify is a relative newcomer and doesn’t satisfy a dividend strategy. However, it’s one of the best stocks on the TSX and still has room to grow. Shopify is the ultimate “social distancing” stock, supporting over a million online retail platforms. Its mean target price of $670 is far above its current price tag of $534. That’s 25% upside even at a conservative estimate.
If your wish list dividend aristocrats are cheap right now, buy in portions. Let’s get back to Fortis. This big-name utilities buy for dividend safety is holding up well against the TSX. But it’s down 9.6% in the last month, making for a clear value opportunity. Hold some cash to buy into recession weakness.
To do this, take your wished-for final dividend stock position and split it into five or six portions of shares, and then buy each portion as the recession deepens.
Be prepared to hold even during periods of non-payment. This could be a tough time even for bigger businesses, so only hold quality names.
The bottom line
Right now, investors should be looking for enticing fundamentals and rock-solid, crash-resistant names. Has a blue-chip stock been outside your value investing threshold? Has it dipped to an affordable level?
Top names like Fortis and Shopify are resilient to the market crash. These high-quality stocks nevertheless offer Canadians long-term value at bargain prices right now.
