What would you have done back in February had you known what March would hold for the stock markets? Chances are, you would have trimmed certain names from your portfolio. You might also have allocated more cash for buying up devalued shares. You might have ensured that you had more liquidity by cashing in a few underperforming stocks.
Well, guess what? The opportunity to do exactly that is here again. Everybody knows that the markets and the economy are two different things altogether. But the gulf between them has never been wider than it is right now. There is little reflection in equities right now of the extreme danger facing the global economy. That makes now the right time to reappraise a stock portfolio in terms of risk.
One stock type to trim
Insurance saw a big pullback during the market crash. Some of these names, such as Manulife Financial and Great-West Lifeco, are still down by 20% year on year. Since mid-April, Manulife has gained just 4%. This asset type’s performance is a lucid indicator of the pandemic market and its appetite for risk. This makes insurance an ample target for trimming fat from a stock portfolio.
Investors concerned about the market making another leg down should consider reducing their exposure to names like Manulife. Sooner or later, investors will recognize the danger inherent in the markets. If it happens suddenly — precipitated by some unforeseen event — this realization could cause another market crash. Reducing exposure to one of the worst-performing sectors during the last crash could be cathartic.
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A top consumer-durable stock to watch
With its outdoor, interactive, boys, girls, activities, and plush segments, Spin Master (TSX:TOY) could reward Canadian investors for years to come, no matter how frothy market conditions are. A 30% pullback has seen a strengthening value thesis for buying this potentially defensive consumer durables name. The last four weeks have seen Spin Master gain 26%, as investors begin to appreciate the all-weather nature of the toy market.
Indeed, the March market crash came in between big toy-buying seasons. So, a portion of that 30% plunge in March could be explainable by simple seasonality. It’s not beyond the imagination that investors are now realizing, as we head into summer, just how essential toys are in a socially-distanced world without school.
From toy stocks to watch to top stocks to wish for, let’s turn away from consumer durables and examine an all-weather play. Investing in defensive asset types is likely to gain in popularity as the year draws on. That’s why Waste Connections could be a hit in the latter half of 2020.
In terms of momentum, Waste Connections shares haven’t exactly been flying off the shelves. But with an overall 12-month average growth of 5.5%, this name isn’t oversold, either. This kind of resilience to the crushing vagaries of pandemic market forces makes for a solid portfolio addition. A 0.77% dividend yield is at the lower end of the scale. However, it’s a well-covered distribution, with a 31% payment ratio. All in all, Waste Connections is a defensive income play.
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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. The Motley Fool owns shares of and recommends Spin Master.