The COVID-19 pandemic is starting to grip the markets once again, as the unprecedented relief rally starts to lose steam.
While it’s comforting to know that central banks around the world are willing to throw everything but the kitchen sink to prevent the worst economic contraction since the Great Depression, investors need to remember that the coronavirus doesn’t care how much money the U.S. Fed is printing or how many CERB cheques the Canadian government will be handing out to dampen the curtailment in consumer spending. The insidious coronavirus is continuing to spread at a rampant rate across various U.S. states, with Florida suffering a considerable surge that could spark a round of reopening rollbacks.
Reopening rollbacks: The real risk to this TSX Index rally
Indeed, the economic reopening isn’t going as smoothly as most investors were expecting, at least south of the border. With the further government-mandated lockdowns potentially on the horizon, now is as good a time as any to trim some of your frothier winners from the April-June relief rally and put it to work in some more defensive plays that can help you weather the next COVID-19-induced TSX Index correction.
Many pundits agree that stocks are, on average, a tad on the expensive side given the risks brought forth by the COVID-19 pandemic. While the valuation of stocks is relative to where interest rates are going to be over the long term (they may not actually be that expensive here), it’s only prudent to do a bit of trimming after one of the biggest multi-month rallies in recent memory.
In the meantime, the tug-of-war between the Fed and the coronavirus will continue. As such, investors should seek to shelter their profits before they’re surrendered in what could by another sharp 10-15% correction. The COVID-19 news that’ll likely spark the correction will undoubtedly be ominous, but at the end of the day, such a correction is only healthy after such an explosive TSX Index run.
Goodfood Market is a good hedge against a resurgence in COVID-19 cases
If you’re looking to dampen your downside, consider rotating funds out of your recent winners and into pandemic-resilient stocks like Goodfood Market (TSX: FOOD).
If you think that Canada is headed for “reopening rollbacks” this summer, as COVID-19 cases re-accelerate, Goodfood stock is what you’re going to want to own. The Canadian provider of meal-kit delivery services has demonstrated its resilience amid this pandemic, and it’ll continue to do so, as the demand for its products increases in conjunction with the risk of contracting the coronavirus in public places such as the grocery store.
While the value of meal-kit delivery services to consumers may be up for debate in times of normalcy, there’s no question that the inherent value is substantially higher in the middle of a pandemic, where a simple trip to the grocery store could cause you to contract the deadly coronavirus.
Over time, Goodfood is slowly but steadily becoming more operationally efficient, and it’ll likely pass a greater value proposition to its customers, as competition in the niche market heats up over the long run. This trend, I believe, makes Goodfood a good secular growth story. In the meantime, Goodfood is likely to enjoy pandemic tailwinds, as it does its part to help vulnerable Canadians get the food they need from the safety of their own homes.
Foolish takeaway on protecting your portfolio from another COVID-19 TSX Index crash
While I don’t view Goodfood as a recession-resilient play, as meal-kit subscriptions are expensive, I think the firm is a good protection play for those looking to protect their wealth in a worsening pandemic. FOOD stock trades at 1.2 times sales and will likely continue to zig while this pandemic-plagued TSX Index zags, and vice-versa.
