How to Build a “Canadian Barbell” Portfolio With TSX Stocks

Stocks like Air Canada (TSX:AC) are ripe for contrarian upside over the short term. Here’s how to balance the risk in a barbell-type portfolio.

There are almost as many ways to invest as there are investors. Some exist at the low-risk, long-term end of the spectrum. Others pack short-term momentum and operate within narrow financial horizons. One way to mix a bit of both worlds is to build a “barbell portfolio” using stocks from either end of the risk spectrum. Such a portfolio consists of steep, short-term growth counterweighted with slow, steady wealth creation.

The beaten-up short-term picks

Many cannabis stocks can fit in this category. Then again, so can many tech names. But perhaps the most upside potential in the shortest amount of time could come from areas hardest hit by the pandemic. A speedy V-shaped market recovery would see key stocks in real estate, especially REITs, rallying the hardest. Other sectors, most notably airlines, are likely to rally alongside them.

Canadians looking to build a barbell portfolio out of TSX stocks should consider adding names such as Air Canada and CAPREIT to the risky, short-term end of the barbell. Air Canada is the perfect contrarian play at the moment.

This is a severely beaten-up stock in one of the most unpopular pandemic-impacted sectors. However, this is what makes it a play for steep short-term growth in the event of a V-shaped recession.

The solid, long-term stocks

Restaurant Brands is likely to outperform no matter the market reaction to forthcoming COVID-19 news. In the worst case scenario, Restaurant Brands represents a defensive consumer staples pick recommended for recession investing. Conversely, a V-shaped recovery is also likely to see the fast food magnate thrive. In summary, Restaurant Brands is a win-win for concerned investors.

Another long-term play perfectly suited to the low-risk end of a barbell portfolio would be CN Rail. This exemplary freight stock also packs energy upside via its crude-by-rail initiative. While hydrocarbons in themselves belong at the risky end of a portfolio, crude-by-rail offers a reduced exposure play on an oil price recovery.

One other energy investment theme carrying lower risk in the energy space also brings with it some of the greater upside potential. This theme is the global clean energy growth trend. Investors can confidently stack shares in names like Algonquin Power & Utilities and Northland Power for a mix of upside and passive income in the green economy space over the longer term.

A word of caution on the green growth trend, though: Growth through partnerships is a source of expansion for any burgeoning industry. The kibosh on conferences joins cheap electricity as one of the most serious setbacks for green power mid-pandemic.

This two-tiered threat could undermine the steep growth on offer in renewables. However, this theme still outweighs the risk rampant in hydrocarbons over the long-term.

Timing the current market is next to impossible. However, there are definitely ways to secure one’s portfolio in the midst of all the turbulence. Investors may find that recession investing is still advisable, and that the rallies may be coming too soon.

While this may weaken the case for buying oversold stocks, though, the upside potential in pandemic-impacted sectors is still strong for shorter-term gains.

Fool contributor Victoria Hetherington has no position in any of the stocks mentioned. 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 and RESTAURANT BRANDS INTERNATIONAL INC.

More on Dividend Stocks

woman checks off all the boxes
Dividend Stocks

5 Reasons to Buy and Hold This Canadian Stock Forever

Brookfield Corp (TSX:BN) is a Canadian stock that merits a long holding period.

Read more »

hand stacking money coins
Dividend Stocks

The 7.3% Dividend Stock You Can Depend On

Despite risks, this key Canadian dividend stock could continue to deliver sky-high yields for a very long time -- a…

Read more »

senior relaxes in hammock with e-book
Dividend Stocks

Top Picks: 3 Canadian Dividend Stocks for Stress-Free Passive Income

For investors looking to pick up reasonable dividend income, but also want to sleep well at night, here are three…

Read more »

Real estate investment concept with person pointing on growth graph and coin stacking to get profit from property
Dividend Stocks

A 7.4% Dividend Yield to Hold for Decades? Yes Please!

Think all high yields are risky? MCAN Financial’s regulated, interest-first model could be a dividend built to last.

Read more »

dividend growth for passive income
Dividend Stocks

3 Canadian Dividend Stocks to Buy and Hold for 20 Years

Three TSX dividend stocks built to keep paying through recessions, rate hikes, and market drama so you can set it…

Read more »

top TSX stocks to buy
Dividend Stocks

How to Build a TFSA That Earns +$200 of Safe Monthly Income

If you want to earn monthly income, here is a four-stock portfolio that could collectively earn over $200 per monthly…

Read more »

diversification is an important part of building a stable portfolio
Dividend Stocks

TFSA Passive Income: 2 TSX Dividend Stocks to Consider Now

Building out a passive income portfolio with great TSX dividend stocks is easier than it sounds. Here are 2 stocks…

Read more »

Printing canadian dollar bills on a print machine
Dividend Stocks

My Blueprint for Generating $113/Month Using a $20,000 TFSA Investment

If you put $20,000 in and divide it 50/50 between both the companies, you could bring in around $113 in…

Read more »