Buying Stocks in a Recession? Think Super Long Term

Investors eyeing the frothiness of the markets should buy stocks for the long-term. Here’s why growth names like Shopify Inc. (TSX:SHOP)(NYSE:SHOP) are a buy.

Double exposure of a businessman and stairs - Business Success Concept

Image source: Getty Images

Investors are having to navigate a fast-moving economic meltdown right now. The rallies are hiding a potential bear pit full of broken businesses and wrecked portfolios. However, some pundits have been going so far as to use the word recovery when speaking of the recent rallies. But the pain is not over yet. Indeed, with the recourse to economic stimuli quickly running out, a bigger storm could be brewing.

Tracking the economic storm

An unusual situation calls for unusual indicators. Everything from manufacturing to restaurant bookings, mortgage applications, to public transportation usage is down. This is all obvious, of course. But these metrics are fast-moving, and may be a more useful set of indicators of a recession than the traditional ones. Aside from their efficacy as recessionary indicators, such industries also represent undue risk in a portfolio.

Take REITs, for instance. There is only one form of REIT even worth a second glance at the moment: healthcare. Out of the window are retail, office space, and even apartment REITs. There was a time when the latter asset type was considered not only strongly defensive but even recession-proof. Not in this recession. Analysts are already saying that this one is going to be different. The solution? Think longer term.

Buy “outside-the-box” stocks

If you really want to think long term, look at the space industry. The NYSE just got its first space tourism ticker in Virgin Galactic. Meanwhile, Tesla sister company SpaceX is strongly partnered with NASA. Every sector on Earth could get a boost from the space industry. The hospitalities, hit hard by the lockdown, could have a truly stellar future. Likewise, big mining names could see their resources massively expanded.

Perhaps you’re not so interested in the off-world colonization dreams of Elon Musk. Consider Shopify. Arguably the best tech stock on the TSX, Shopify can boast around a million clients. Its e-commerce growth model could bring shareholders steep returns for years to come. Its twin-stream business model allows for market penetration on two fronts. Subscription accounts for around 43% of its revenue, while merchant solutions makes up the rest.

The prospects for Shopify are technically limitless, with a flexible e-commerce business model applicable to every area of industry. It’s a key play for cannabis upside as well as a buy for potentially gravity-defying momentum in its own right. This key Canadian name has gained 37% during the virus outbreak and shows no signs of slowing down. For a truly futuristic portfolio, Shopify could be paired with a miner like Rio Tinto, which already has offworld mining ambitions.

The bottom line

The market rally is a smokescreen. Until a vaccine is produced and shown to be effective, the economy is still at the mercy of the virus. Some sectors have been set back by years. And all the while, a cheap money bubble is inflating. Investors should use the rallies to trim weaker names from their portfolios. Investors should think outside the box, settle in for more frothiness, and hold quality names for the long term.

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. David Gardner owns shares of Tesla. Tom Gardner owns shares of Shopify and Tesla. The Motley Fool owns shares of and recommends Shopify, Shopify, and Tesla. The Motley Fool owns shares of Virgin Galactic Holdings Inc.

More on Stocks for Beginners

what to do when stock market falls
Stocks for Beginners

4 Stocks to Buy Now and Forget for a Decade

Looking for stocks to buy now and forget for a decade or longer? The market is full of great opportunities…

Read more »

Hand arranging wood block stacking as step stair with arrow up.
Stocks for Beginners

Street Analysts Expect This High-Growth Stock to Climb 170% in a Year

Lightspeed’s consistently improving fundamentals and solid sales growth trends support analysts’ high expectations from its stock.

Read more »

IMAGE OF A NOTEBOOK WITH TFSA WRITTEN ON IT
Stocks for Beginners

How to Simply Turn a $20,000 TFSA Into $150,000 or More

The Tax-Free Savings Account (TFSA) creates chances to build long-term wealth. Here are two stocks that could help turn $20,000…

Read more »

sad concerned deep in thought
Stocks for Beginners

Is it Dangerous for First-Timers to Invest in May 2022?

First-time investors can still invest in 2022 and have peace of mind, provided the positions are in two blue-chip stocks.

Read more »

STACKED COINS DEPICTING MONEY GROWTH
Stocks for Beginners

TFSA Investors: This Stock Could Easily Turn $47,000 Into $500,000

Buying some fundamentally strong stocks for the long term amid the ongoing market selloff could help TFSA investors multiply their…

Read more »

Dollar symbol and Canadian flag on keyboard
Stocks for Beginners

Got $2,000? Buy These 2 Canadian Growth Stocks for Enormous Returns

Canadian growth stocks have fallen fast. If you've got $2,000, there are some serious bargains for enormous returns in the…

Read more »

Illustration of bull and bear
Stocks for Beginners

3 Stocks to Hold During a Volatile Market

Are you wondering which stocks you should be holding right now? Here are three top picks!

Read more »

Path to retirement
Stocks for Beginners

TFSA Investors: 3 Stocks to Keep in Your Retirement Portfolio

Are you using your TFSA as a way to save for your retirement? Make sure you hold these three stocks!

Read more »