Last year saw mounting uncertainties that hinted at a downturn. This year, the downturn is already upon us and threatens to become something much nastier: a full-blown depression. Unemployment levels are rocketing and output is shrinking. So how should investors react, and what qualities should a portfolio reflect right now? It’s time to break out the recession investing playbook.
Move into “3D” investing: Dividends, defensiveness, and diversification
BCE (TSX:BCE)(NYSE:BCE) is a wide-moat pick in highly competitive space. However, it holds its own with a third of the wireless market share. BCE is a strong buy when it comes to social distancing. It’s a play for media as well as telecom upside. The Bell Media parent company also operates content streamer Crave and licenses Showtime and HBO in Canada.
While BCE might not be a big tech stock packed with momentum, it’s arguably as close as the TSX gets to our very own Netflix. The lockdown measures that have crushed other sectors certainly support digital media, however, which means that social distancing puts stocks like BCE in the spotlight. BCE has performed well amid a frothy market.
The good qualities outweigh the bad with this stock, but it does depend on one’s stance toward Canadian telecom. BCE pays a 5.8% dividend yield. However, its high (98%) payout ratio leaves no room for growth and may be a point of concern.
Consumer staples stocks are a strong choice right now
Loblaw Companies (TSX:L) may look a little unassuming at a glance. It’s a retail stock, after all. And retail is being hit hard by the lockdown. But a business empire emerges when you stop and look at Loblaw. This deceptively defensive consumer staples name is a must-have for a diversified portfolio.
The list of brands covered by Loblaw is impressive. Joe Fresh, President’s Choice, Shoppers Drug Mart and more. Even more impressive, perhaps, is its 25% share price appreciation in the last four weeks. This stock is a strong buy for the defensive income investor. Its 1.7% dividend yield and 42% payout ratio make for well-covered payments with plenty of room for growth.
Moving onto tech, we have a strong thesis for buying and holding. Tech stocks are often resilient to economic stress due to their lower overheads. Remote work is emerging as a strong play, for instance, as are e-commerce names like Shopify.
Shopify (TSX:SHOP)(NYSE:SHOP) doesn’t pay a dividend – not yet, anyway. Right now, this name is all about defying gravity. This is the kind of stock Warren Buffett missed out on when he famously passed on Amazon. It’s got two other strong qualities that make it a buy: defensiveness and diversification.
Its e-commerce model makes it the perfect pick for an online world. The flexibility of that model also means that Shopify’s clients are strongly diversified.
Shopify is also a strong play for cannabis upside. The legal pot stock space may seem an unlikely hero during a period of extreme economic stress. However, the cannabis sector has been proving surprisingly resilient and will help bolster Shopify and supply growth.
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.
John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Fool contributor Victoria Hetherington has no position in any of the stocks mentioned. David Gardner owns shares of Amazon and Netflix. Tom Gardner owns shares of Netflix and Shopify. The Motley Fool owns shares of and recommends Amazon, Netflix, Shopify, and Shopify and recommends the following options: short January 2022 $1940 calls on Amazon and long January 2022 $1920 calls on Amazon.