The coronavirus has been devastating for some and challenging for all. While stock markets have held on, there’s no denying that the future is uncertain. Another plunge could be on the way.
Jeremy Grantham, head of GMO Asset Management, thinks asset prices are primed for another correction. In a recent investor letter, he warned that “the current market seems lost in one-sided optimism when prudence and patience seem much more appropriate,” adding that his “confidence that this will end badly is increasing.”
Grantham should be listened to. He has a long and successful track record predicting stock market drops.
“Mr Grantham, who has built much of his career on the observation that markets ultimately tend to revert to their long-term average levels, dumped positions in Japanese stocks two years before the country’s asset price bubble burst in 1989. He also bet against dot-com stocks for more than a year before they turned 20 years ago,” reported the Financial Times.
It’s important to know that Grantham isn’t alone in his concern over another bear market. But it’s not just the coronavirus that has investors worried. “There’s a trade war, there’s a technology war, there’s a geopolitical war, and there could be a capital war — that’s the reality,” warned Ray Dalio, head of Bridgewater Associates, one of the largest hedge funds in the world.
If you own stocks, now is the time to prepare. Buy companies that can thrive in any economic environment. Fortunately, Canada has one of the best options for investors looking to mitigate their risk without sacrificing long-term upside.
The best coronavirus stock
Hydro One (TSX:H) is my top stock for investors looking to avoid another downturn. If you want stability, there’s no better option.
Hydro One is considered a rate-regulated utility. Nearly 100% of its cash flow stems from rate-regulated earnings. These are revenue sources regulated by the government. So, Hydro One delivers electricity to its clients, and the government determines how much it can charge, usually years in advance.
Government regulation may sound bad, but in times of crisis, it’s a saving grace. The coronavirus crisis should prove no different.
In good times and bad, electricity demand remains stable. In fact, it typically grows over the long term. That means volumes are steady year to year for Hydro One. The other half of the equation is pricing, and because the government dictates pricing years ahead of time, there’s near-perfect visibility here.
In total, Hydro One operates a recession-proof business, whether that’s precipitated by a housing collapse or global pandemic. Business continues as usual in nearly any environment. In uncertain times, this is the stock you want to own.
Over the next five years, company executives want to grow its rate base by roughly 5% per year. That plus the stock’s 3.7% dividend should deliver roughly 8.7% annual returns for shareholders. That’s nothing to write home about, but when markets are dropping by 20%, 30%, or even 50%, you’ll be ecstatic to generate positive returns.
Hydro One isn’t the only coronavirus-proof stock, but it’s one of the best.