Recent reports have revealed that individuals at top levels were aware of the risks of the spread of COVID-19 as early as January. However, most investors started to see the worst effects of the outbreak by the beginning of spring. At the time, I’d suggested that Canadians should scoop up TSX stocks in “sin” industries, as the provinces pursued lockdowns.
Today, I want to review some of the top TSX stocks that still look interesting, as Canada wrestles with a recession. A rise in cases in Canada has political leaders openly pondering a return to lockdown measures. This would deal even more damage to an already struggling economy. Investors should be looking to protect themselves in these conditions.
Why this TSX stock qualifies as recession proof
In April, I’d discussed whether cannabis stocks qualified as recession proof. Cannabis sales spiked early in the spring, but activity has since normalized. This is likely due to consumers stocking up in response to the early lockdowns.
Canopy Growth remains the largest cannabis producer in Canada. Its shares have dropped 20% in 2020 as of close on September 15. The stock is down 40% year over year. Canopy Growth still has a way to go before it will achieve profitability in what has become an increasingly competitive domestic cannabis market. Moreover, Canopy’s hope for a breakthrough in the United States will have to wait, as neither presidential candidate is in a hurry to pursue federal legalization.
Regardless, Canopy Growth is still a stock with high-growth potential. TSX stocks in the cannabis space have not taken a huge hit due to the pandemic and recession. However, the highly competitive state of the market has made it hard for any one company to break out.
Is this beer stock a buy-low opportunity?
Molson Coors Canada brews, markets, sells, and distributes beer brands in Canada. Its stock has dropped 36% in the year-to-date period. In Q2 2020, Molson achieved underlying EBITDA growth of 2.2% in constant currency. Unfortunately, beer consumption has faded among younger demographics in recent years. This has made Molson a riskier option than stocks that are more focused on wine and spirits.
Shares of this TSX stock last had a price-to-earnings (P/E) ratio of 24 and a price-to-book value of 0.5. This puts Molson in favourable value territory.
My favourite TSX stock to snag in a recession
Where Canopy Growth and Molson have struggled, Corby Spirit and Wine (TSX:CSW.A) stock has climbed 5.6% in 2020. This TSX stock is still down 5.7% year over year. The company released its fourth-quarter and full-year 2020 results on August 26.
In 2020, Corby delivered net earnings of $26.7 million or $0.90 per share — up 4% from the prior year. Corby’s brands have been resilient in the face of the COVID-19 pandemic. This does not come as a huge surprise, as alcohol sales have surged in North America during this crisis.
Shares of Corby last possessed an attractive P/E ratio of 16. In May, it announced a quarterly dividend of $0.20 per share. This represents a strong 5.1% yield. Corby is an undervalued TSX stock that offers nice income. This is the perfect sin stock to own in a recession.
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 Ambrose O'Callaghan has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends CORBY SPIRIT AND WINE LTD CLASS A.