The Motley Fool

Here’s the Stock I’m Buying, as I Plan for a Stock Market Crash

Image source: Getty Images.

The stock market is coming in hot, perhaps too hot, paving the way for a stock market crash (or correction) following one of the best months in over three decades.

Now, the latest rally is on the back of some highly favourable U.S. election results and COVID-19 vaccine news. While the news is enough to inspire one to put the remainder of their savings on stocks, I’d urge investors to be cautious after the run, as COVID-19 cases continue to surge uncontrollably across many states and provinces that could be going from partial closures to a full-blown lockdown.

Before the population can be inoculated, we face a tough winter. And here in Canada, the economy may find itself stuck in the gutter for a bit longer if the average Canadian isn’t able to get vaccinated by the second half of 2021.

Stock market crash: Has this vaccine-driven rally overextended itself?

Yes, the recent slate of good news gives eliminates a set of risks, making certain investors more comfortable to get back in the market. But have investors piled in too fast, too soon?

Possibly. While the end of this pandemic is now within reach, the odds of extensive economic damage in this second wave could have the potential to be drastically worse than most analysts are calling for.

As such, I think now is a great opportunity to take some profits off the table with some overheated COVID-19 recovery plays (think Cineplex), many of which surged over 50% last month, in favour of the out-of-favour defensives. Such defensives took an unfair hit to the chin last month amid the rotation into recovery stocks. Still, it’s these names that will best hold their own should Mr. Market pull the rug from underneath investors again.

Consider picking up shares of Fortis (TSX:FTS)(NYSE:FTS) on weakness before any investor “irrational exuberance” sparks a much-needed stock market crash or correction.

Fortis: A safety play with a low price of admission

Fortis is a great stock to buy whenever shares dip, as it’s usually a broader reversal in appetite for defensives rather than concerns with the company itself. With a highly regulated operation cash flow stream, Fortis is one of few businesses that should trade in its own world, regardless of what’s troubling the broader market. At the end of the day, Fortis will continue returning ample amounts of cash to shareholders in the form of its generous dividend that’s poised to grow at a mid-single-digit rate each year, recession or not.

With Fortis, you won’t get much in the way of surprises. For a utility, Fortis is growing at an above-average rate, but you’re certainly not going to get rich off the name. Instead, you’re getting some very high-quality earnings with a name that I find to be among the easiest to value, given the steady, upward nature of its earnings.

The stock is currently down just shy of 5% from its November highs and down 11% from its pre-pandemic all-time highs. I’d treat the pullback as nothing more than a buying opportunity for investors looking to ride out what could be a bumpy road that could include a stock market crash en route to the post-pandemic world.

If you're looking for opportunities in this uncertain market, I'd encourage you to consider the following:

Just Released! 5 Stocks Under $49 (FREE REPORT)

Motley Fool Canada's market-beating team has just released a brand-new FREE report revealing 5 "dirt cheap" stocks that you can buy today for under $49 a share.
Our team thinks these 5 stocks are critically undervalued, but more importantly, could potentially make Canadian investors who act quickly a fortune.
Don't miss out! Simply click the link below to grab your free copy and discover all 5 of these stocks now.

Claim your FREE 5-stock report now!

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 Joey Frenette owns shares of FORTIS INC. The Motley Fool recommends FORTIS INC.

Two New Stock Picks Every Month!

Not to alarm you, but you’re about to miss an important event.

Iain Butler and the Stock Advisor Canada team only publish their new “buy alerts” twice a month, and only to an exclusively small group.

This is your chance to get in early on what could prove to be very special investment advice.

Enter your email address below to get started now, and join the other thousands of Canadians who have already signed up for their chance to get the market-beating advice from Stock Advisor Canada.