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Canadian Stocks for Great Returns From a Market Downturn

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Stock market downturns often occur alongside economic downturns. The last market correction (rather a flash market crash) at the onset of the pandemic turned out to be an opportunity to buy stocks.

In about a month, the TSX Index declined more than 30%. There was little time to react to the downturn, especially if you’re not an investor that watches the market like a hawk. At times like then, the best thing to do is to hold onto your diversified portfolio of stocks and buy more if you had excess cash.

That market downturn recovered quickly. From the low, it only took nine months to return to the pre-pandemic highs.

Buying certain stocks during market downturns yield pretty secured outsized gains. Here are a few examples that are leaders in their respective spaces.

Royal Bank of Canada

Big Canadian bank leader Royal Bank of Canada (TSX:RY)(NYSE:RY) was a no-brainer buy during the pandemic market crash. The bank had a higher provision of credit losses and had to set aside more cash for a higher expected level of bad loans. A highly uncertain macro environment dragged the stock down by about 30% during the market downturn.

For fiscal 2020, RBC’s adjusted earnings per share (EPS) only ended up dropping 12%. Before long, the quality bank stock went on its recovery path. Currently, it trades at all-time highs.

RBC stock has sustained dividend payments through market downturns for at least the last two decades. Its current payout ratio is estimated to be below normal levels because of the dividend freeze. Therefore, investors can trust its nice dividend yield to be safe. In fact, it could even start increasing its dividend again this year.

Magna International

One Canadian stock that’s a leader in its space is Magna International (TSX:MG)(NYSE:MGA). The concerns surrounding peak auto had pressured the auto-part maker stock for a couple of years before the pandemic hit.

The pandemic market crash drove the stock to as low as $35 per share. Believers in Magna’s ability to stay relevant in the world’s transition to electric and autonomous vehicles could have cautiously bought shares after the stock bounced from the $35 low and somewhat stabilized in the $45-55 range.

Followed by a 10% decline in adjusted EPS in 2019, Magna stock experienced another decline of 38% in its adjusted EPS in 2020.

However, as in most cases, the market was forward looking on the cyclical stock. The stock bottomed during the 2020 market crash, stabilized over the following six to eight months and has rallied since. Magna is expected to make a big turnaround this year on its earnings and experience strong earnings growth over the next few years.

Braves souls who bought in the $50 range would have already roughly doubled their investment!


A Canadian tech stock leader in the e-commerce space, Shopify (TSX:SHOP)(NYSE:SHOP) stock always seemed to be expensive. During the pandemic market crash, the tech stock fell as much as 50% from peak to trough.

That said, Shopify stock was one of the first stocks to recover! The stock returned to its previous high of US$600 in about a month from the market crash bottom. From there, it continued to grind higher, demonstrating strength in its stock momentum. From the pre-pandemic peak, the proud Canadian stock has doubled investors’ money. For those who managed to grab the stock at the market crash low, their money would have quadrupled!

The pandemic has enhanced the e-commerce trend. Therefore, Shopify stock will likely maintain a premium valuation.

The Foolish takeaway

Market downturns are not the time to shy away from volatile stocks. At the very least, investors should stay invested. And if you have excess cash, consider loading up on shares in the leaders such as RBC, Magna, and Shopify when their stocks are down to benefit from the inevitable comeback of quality businesses.

We don't know when the next market downturn will be, but here are some of the best Canadian stocks to buy now.

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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 Kay Ng owns shares of Royal Bank of Canada and Shopify. Tom Gardner owns shares of Shopify. The Motley Fool owns shares of and recommends Shopify and Shopify. The Motley Fool recommends Magna Int’l.

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