3 “Essential Service” Stocks That Will Survive COVID-19 Unscathed

Essential service stocks like Fortis Inc (TSX:FTS)(NYSE:FTS) will survive COVID-19 unscathed.

| More on:
Dad and son having fun outdoor. Healthy living concept

Image source: Getty Images

Amid the era of COVID-19, many companies are unable to operate normally. Those hardest hit include airlines, gyms and restaurants. Because their business models depend on people congregating together, they’ve been virtually forced to close.

Airlines, in particular, have been devastated thanks to the near-shutdown in international travel. In this environment, some stocks are doing OK, but others will keep getting crushed.

We’ll start to see the winners separated from the losers when earnings roll out this month. However, there probably won’t be any huge surprises. It’s already clear that essential service businesses will fare better than businesses that cater to discretionary spending.

If you pick stocks that provide such services, you may do better than the average investor. With that in mind, here are three essential service stocks that will survive COVID-19 unscathed.

Dollarama

Dollarama Inc (TSX:DOL) is Canada’s largest dollar store company, with an 18% share of Canadian discount retail. That’s a pretty large market share as it is. But remember that discount retail includes big-box stores like Wal-Mart. If we limit it to dollar stores, Dollarama’s market share is far higher.

Why does that matter?

It matters because dollar stores have two big advantages in the current economy. One, dollar stores that sell grocery items are able to remain open as essential services. Two, dollar stores in general offer low prices, which appeals to cash-strapped consumers.

Discount retailers always see their sales climb in recessions, and Dollarama confirmed that it got a boost in the first weeks of the COVID-19 lockdowns.

Canadian National Railway

The Canadian National Railway (TSX:CNR)(NYSE:CNI) is Canada’s largest railroad company. It ships goods like crude oil, coal and grain all over North America. Its crude oil and coal businesses are getting hit now due to lower demand. However, its shipping volumes are not down as severely as, say, air passenger travel.

In its most recent week, CNR saw carloads decline 16% year over year. In normal circumstances, that would be a bad thing, but remember, we need to compare CNR to other TSX stocks.

In an environment where passenger airlines can’t fly and oil companies can’t profitably sell their product, the hit to CNR’s business has been minuscule, which makes today a good time to pick up the stock at a discount price.

Fortis

Fortis Inc (TSX:FTS)(NYSE:FTS) is Canada’s largest publicly traded utility. It provides utility services for 3.3 million customers in Canada, the U.S. and the Caribbean. Like all utilities, Fortis is an essential service that can operate through the COVID-19 lockdowns.

Further, its core service is not typically affected too heavily by recessions. People keep paying their heat and light bills even during economic downturns, which can lead to solid earnings for utilities in these circumstances.

In Fortis’ case, it managed to grow its earnings in 2008 and 2009, the worst years of the global recession — testament to the safety of utilities in even the worst economic times.

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 Andrew Button owns shares of Canadian National Railway. David Gardner owns shares of Canadian National Railway. The Motley Fool owns shares of and recommends Canadian National Railway. The Motley Fool recommends Canadian National Railway.

More on Dividend Stocks

Female hand holding piggy bank. Save money and financial investment
Dividend Stocks

RRSP Savings: 2 Top TSX Dividend Stocks to Build Retirement Wealth

Here's how investors can turn small initial RRSP contributions into substantial savings for retirement.

Read more »

Man holding magnifying glass over a document
Dividend Stocks

2 BMO ETFs Are Less Volatile Than BMO Stock

Two ETFs of a big bank are more suitable for risk-averse or ultra-conservative investors than its stock.

Read more »

Target. Stand out from the crowd
Dividend Stocks

1 Cheap Dividend Stock to Buy as Recession Fears Rise

Great-West Lifeco (TSX:GWO) is an undervalued financial stock that looks like a great buy, even as the world economy tumbles…

Read more »

Profit dial turned up to maximum
Dividend Stocks

2 TSX Stocks Paying Over 5% in Dividends

Add these two blue-chip dividend stocks to your portfolio for wealth growth through shareholder dividends and capital gains.

Read more »

Business people standing near houses models
Dividend Stocks

2 REITs to Own as Rental Housing Demand Rise

Two prominent residential REITs should be on your buy list, as the rental housing market picks up due to rising…

Read more »

Retirement plan
Dividend Stocks

FIRE Movement: How to Retire Early Using Your TFSA

You can increase your financial independence and even retire early by investing in solid dividend stocks in your TFSA over…

Read more »

Senior Man Sitting On Sofa At Home With Pet Labrador Dog
Dividend Stocks

RRSP Investors: 2 Stocks to Buy Now for a Personal Pension Fund

RRSP investors can find top TSX dividend stocks at cheap prices today.

Read more »

Cogs turning against each other
Dividend Stocks

1 Passive-Income Stock to Counter Volatility

Looking for a stock that can counter volatility now and tomorrow? This stock is a reliable option for growth and…

Read more »