Stagflation — an environment that has elevated inflation and stagnant growth — is pretty rare, and many investors have never encountered such uncharted waters in their investment careers. It’s not easy sailing, and beginner investors should not be too hard on themselves, especially after one of the worst first halves to a year in many decades.
In this bear market that’s plagued with high inflation, it’s all about doing your best to lose the least, while looking for opportunities to prepare yourself for the next bull market. After the hurricane, which we are current in the midst of, comes better weather. So, TFSA investors should focus on steadying their portfolios ahead of what could be another wall of the storm en route to calmer waters.
Stagflation could be in the cards: Here’s how to prepare
Even if stagflation is in store for late 2022 or early 2023, TFSA investors should know that such an environment will be temporary. Remember, high inflation tends to be a sign of overheated growth. As rate hikes drag economic growth, inflation is expected to cool off in a big way.
Undoubtedly, a recession isn’t what anybody wants. But as an investor, it’s your job to sail through rockier waters. When you’re investing in the markets for the long haul, you’re committing to setting sail in unknown waters.
Sometimes the waters will be choppy; other times, they’ll be smooth. You should do your best to sail through and not seek to jump ship at the first signs of choppiness! Many investors are probably feeling seasick after a turbulent first half. However, in due time, you will likely gain your sea legs with experience staying invested in markets!
In this piece, we’ll have a look at two TSX value stocks that I believe can help dampen the choppy waters.
Consider shares of Dollarama (TSX: DOL) and Telus (TSX: T)(NYSE: TU) as stagflation and recession risks rise.
Dollarama
When the economic light begins to dim, it’s time to focus on firms that may actually stand to do better. As a well-run discount retailer, Dollarama is in great shape to take share away from other retailers that can’t offer the same value. Dollarama’s purchasing power allows it to pass on the value to its customers. As a result, many customers will stand by Dollarama if their budgets are feeling the pressure, either from inflation or a weaker economy.
Shares of DOL are up more than 20% year to date. The company is clocking in solid numbers and is likely to continue doing the same, as central banks pull the brakes on economic growth. The stock is not cheap at 33.1 times trailing earnings. In fact, it’s the priciest it’s been in a while. Though I’m not against buying here, especially if you lack defensive exposure, I’d prefer waiting for a 5-10% dip before loading up.
Telus
Telus is another rock-solid stock that can help you sleep easier, as markets continue to swing to the downside. Now, telecoms aren’t the most defensive of businesses. Wireless spending and roaming could take a hit as the economy slides. Many may postpone device or plan upgrades until after they’re in better financial position.
Despite Telus’s economic sensitivity, the huge dividend is on very stable footing. It’s the dividend (currently yielding 4.7%) that TFSA investors will reach for, even as Telus begins to fall short of expectations. Indeed, the juicy payout is a main attraction to the stock. And as long as it’s well supported (it likely will for the coming recession), the stock is a portfolio mainstay.
