The Motley Fool

1 Stock That Can Help You Prepare for a Market Correction

Image source: Getty Images

While the U.S. and Canadian markets continue to soar like a rocket, technical analysis indicates markets may be due for a correction, but there’s no reason to panic. You can prepare your portfolio for a market correction.

Be prepared for a market correction

Javed Mirza, analyst at Canaccord Genuity Capital Markets, expects the S&P/TSX Composite Index to decline to 16,790 points, an 8.7% drop from its current levels.

“Although momentum remains strong, particularly in the U.S., our technical work continues to flash warning signs that an intermediate-term (1-2 month) correction is on the horizon,” Javed Mirza wrote in a note.

You might therefore want to make some changes to your portfolio. While cyclical and growth stocks tend to perform well in a bullish phase, they are sensitive to a stock market correction. On the other hand, defensive and value stocks will tend to perform better during a market downturn.

A stock to own during a market correction

Metro (TSX:MRU) is the kind of stock that could actually rise during a market correction. Indeed, the grocer has a beta of -0.16. A negative beta means that the stock tends to move in the opposite direction of the market. So, while Metro stock has fallen in recent days while the market has risen, this could change if the market crashes.

Metro owns grocery stores and pharmacies, which are defensive businesses. While many stores had to shut down because of the pandemic, Metro was able to continue its operations. It even managed to increase its sales and profit in the last quarter despite a labour conflict and a mild cold and flu season.

The company, which owns Metro grocery chain and Jean Coutu pharmacies, said comparable food store sales rose 10% for the 12-week period ended December 19.

Drugstore sales rose only slightly, led by a 3.8% drop in front-store sales as measures to curb COVID-19 reduced in-store traffic as well as demand for cough and cold products.

In addition, Metro said that its warehouse sales to franchisees were affected by the labour dispute at a Jean Coutu distribution centre in Quebec, which had a dampening effect on the company’s overall sales.

“Our contingency plan has enabled us to successfully maintain drug supplies to over 400 pharmacies,” Metro President and CEO Eric La Fleche said in a statement. “We are now back to normal operating conditions in the distribution centre.”

Metro raised its dividend

The grocery and pharmacy retailer also raised its quarterly dividend by 11.11%, from $0.225 to $0.25 per share.

Metro earned $191.2 million or $0.76 per diluted share for its first quarter, compared with earnings of $170.2 million or $0.67 per diluted share in the same quarter a year earlier.

Metro continues to innovate. Earlier in January, the grocer launched My Health My Choices, a new guide for customers who want to simplify their grocery shopping based on their own lifestyle, values, or health needs. Metro is the only grocery store in Canada to offer a food selection guide based on lifestyle and personal preferences through its My Health My Choices program.

Motley Fool Canada Makes 5G Buy Alert

5G is one of the greatest arrivals in technology since the birth of the internet. We could see plenty of new wealth-building opportunities in 2021 that would potentially dwarf any that came before them.

5G has the potential to radically change our lives and society as we know it, but if you’re an investor, the implications are even greater — and potentially much more lucrative.

To learn more about it and its revolutionary potential to change the industry — and potentially your bank account — click on the link below to get the full scoop.

Learn More Today!

Fool contributor Stephanie Bedard-Chateauneuf has no position in any of the stocks mentioned.

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.

I consent to receiving information from The Motley Fool via email, direct mail, and occasional special offer phone calls. I understand I can unsubscribe from these updates at any time. Please read the Privacy Statement and Terms of Service for more information.