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Hedging the Recession? Try These Surprising TSX Stocks

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From Bill Ackman to Ray Dalio, everyone is trying to hedge the coronavirus right now. But what if it can’t be done? Fear is the predominant factor in today’s markets, driving huge losses and sudden gains. But contrarians know that the correct wolf to feed in a bear market is the one named Greed.

Geared ETFs may sound safe right now. But there are plenty of reasons why indexing in the current market could be potentially full of pitfalls and potholes. Cannabis investors will know that the legal weed space is a stock-picker’s market. Certain names outperform and are worthy of long positions. Meanwhile, bad apples pull down the index.

Well, the whole TSX Composite Index has become a stock-picker’s market now. Who would want to find an oil stock rotting away at the bottom of their fund right now? Or a retail REIT, riddled with risk and reeking of reneged rents? Investors should be eschewing these kinds of souring asset classes and actively buying safe names.

Mixing outperforming names could be key to safety

Vermilion Energy is a buy for a potential oil rally at the end of the year. This name has already shown its potential for upside this year. Just look at the incredible 35.5% gains it’s seen this week. It may not be safe amid oil headwinds. Go long on value, though, when it dips again for a potential oil recovery. Placing a side bet on oil just when it’s the most oversold could be a strong play.

Shopify is a strong buy right now. If you’d passed this tech stock over as a retail play, you’re missing its potential for safe positive momentum. This e-commerce super stock is easily one of the safest tech stocks on the TSX, bar none. It commands a huge and growing base of customers, usually reported as exceeding one million. Its online sales platform is vastly popular and can also be seen as a proxy for legal cannabis exposure.

Speaking of cannabis, the next name to buy is Village Farms. There’s a lot of upside potential in U.S. cannabis. And this food stock, which doubles as a cannabis play, is well positioned to capitalize. Its dried flower products are a top seller online, making this a rare wide-moat play for strong market share. The company is profitable, reducing the “cash runway” risk for buying pot stocks. It also has consumer staples safety.

Gold is a defensive choice at the moment. Franco-Nevada, a favourite big-name gold miner, is up 10% since last year. BCE and Nutrien are other good examples of relatively safe stocks that have performed well during the coronavirus market crash. All three stocks could be a good hedge against a steeper decline.

The bottom line

Defensive stocks are essential for portfolio strength at the moment. Investors should look to classic safe sectors. This includes precious metals, consumer staples, utilities, and wide-moat industry leaders. However, investors should watch how the TSX performs during the coronavirus market crash and also take note of surprising outperformers.

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 Victoria Hetherington has no position in any of the stocks mentioned. Tom Gardner owns shares of Shopify. The Motley Fool owns shares of and recommends Shopify, Shopify, and Village Farms International, Inc. The Motley Fool recommends Nutrien Ltd.

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