4 Stocks to Fight the 4th Wave

The fourth wave of the pandemic has brought another round of ifs and buts. Prepare your portfolio to fight this uncertainty with four stocks. 

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Have you heard about the fourth wave of coronavirus? So, you must know the fourth wave is nothing like previous waves. There will be restrictions in selected areas, and privileges may differ depending on your vaccine status. For instance, only the vaccinated population travelling from abroad will be allowed in Canada. But the overall economy will remain open. However, the governments are keeping a close watch on how the reopening will impact the virus spread. 

Fight the fourth wave 

None of us know what the fourth wave holds. The fourth wave could bring two scenarios: a slower reopening with social-distancing restrictions or another lockdown. Momentum stocks are those that ride the trend and show significant growth. Here are four stocks that could help you fight the fourth wave.

Enghouse Systems

Enghouse Systems (TSX:ENGH) rode the work-from-home trend during the pandemic. Its 2019 acquisition of video software solutions company Vidiyo turned into a pandemic catalyst. The lockdown created a sudden surge in demand for video conferencing and boosted Enghouse’s revenue, which surged 31% in 2020 compared to 13% in 2019. Enghouse stock doubled in four months (March 20, 2020, and July 10, 2020) when other non-tech stocks fell. 

As Enghouse couldn’t sustain the pandemic revenue levels, its fiscal 2021 second-quarter revenue fell 16.7%. The stock dipped 33% from its pandemic high and has now started to recover. When all other recovery stocks dipped (June to August), Enghouse stock surged 18.5%. In both cases, Enghouse moved in the opposite direction that the recovery. 

Kinaxis stock 

Another momentum stock is Kinaxis (TSX:KXS), which offers supply chain planning software. This is a resilient stock that will grow in either case. If the economy reopens in full swing, the industrial supply chain will have pent-up orders to fulfill, thereby creating demand for Kinaxis solutions. If there is another lockdown, e-commerce orders will pick up as the holiday season approaches. 

Just like Enghouse, Kinaxis stock more than doubled between March and October 2020 and fell 36.6% during the recovery period (November 2020 to May 2021). In the last three months of a bear market, Kinaxis stock surged more than 45%. These two momentum stocks ride against the tide. 

This feature makes these stocks a good defence that can mitigate the downside from the fourth wave. 

Resilient dividend stocks 

Remember, the momentum stocks can only mitigate your downside when the overall market is bearish. What if the economy recovers and the world returns to where it was in 2019? You should be prepared for that, too. 

Telecom giant BCE (TSX:BCE)(NYSE:BCE) is riding the 5G wave, which the pandemic stalled. BCE has accelerated its investment in the 5G infrastructure, and it is now reaping the benefits. Its second-quarter revenue and adjusted EBITDA surged over 6%, which is way above its average growth of 2%. 

The company still has negative free cash flow, as it is investing capital on the 5G rollout. This could slow its dividend growth for some time. But that is offset by the stock price rally of 19% since March. Such a rally from a stock that gives a 5.39% dividend yield is remarkable. If the recovery fades and there is another lockdown, you can enjoy the dividend income. 

Another dividend generator stock is Canadian Utilities (TSX:CU) that supplies electricity and natural gas to Alberta, Latin America, and Australia. Given the 5G rollout, electric vehicle (EV) adoption, and growing reliance on technology, electricity consumption per user will only grow. The ever-growing demand for electricity will encourage Canadian Utilities to continue investing in power generation and transmission infrastructure. It will increase cash flow by widening its reach. 

The pandemic reduced industrial consumption, pulling down Canadian Utilities stock, but that increased its dividend yield. The stock has rallied almost 25% from its March 2020 dip, but you can still lock in a 4.94% dividend yield before the stock recovers to its pre-pandemic levels. 

Final thoughts 

A robust portfolio has a mix of momentum, dividend, and resilient stocks. The above stocks can give you dividends and growth in a bear and a bull market. 

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 Puja Tayal has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Enghouse Systems Ltd. The Motley Fool recommends KINAXIS INC.

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