2 Steady Stocks to Stabilize Your TFSA in a Recession

CN Rail and another top Canadian stock that looks like a great fit for any long-term investors’ TFSA retirement fund.

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Broader stock markets are starting to feel wobbly or “toppy” again, as investors lose enthusiasm over the recent U.S. inflation data. Undoubtedly, various market strategists have price targets on the S&P 500 that suggest very modest gains from here. Some of the more bearish strategists see some downside up ahead.

In any case, investors shouldn’t hit the sell button with their TFSAs just because of dire near-term forecasts. Even the smartest market strategists and economists can be proven wrong by Mr. Market. At the end of the day, markets move in mysterious ways, making it so incredibly difficult for market participants to make money consistently over the day-to-day, week-to-week, or even month-to-month.

The good news is you don’t need to make gains on such a short-term basis. As a long-term investor seeking to build wealth over the years, you need not overreact to the inevitable pitfalls you’ll encounter on the way to a prosperous retirement. There will be bumps in the road. That much is almost guaranteed. It’s how you respond to such bumps that will likely determine how quickly you reach your long-term retirement goals and how fat of a nest egg will be waiting for you 10, 20, or even 30 years from now.

Those who act on emotions will likely get in the way of the compounding process. Those who stay cool, calm, and collected can let the markets do their thing. And those who can take advantage of opportunities amid market-wide panic may just surprise themselves.

In this piece, we’ll consider two stocks to help stabilize your TFSA as the market waters get choppier once again.

Fairfax Financial Holdings

First up, we have a diversified insurance and investment holding firm in Fairfax Financial Holdings (TSX:FFH).

As you may know, I’m a massive fan of Prem Watsa, the man behind the curtain over at Fairfax. He’s a long-term investor at heart, and if he has confidence in an investment, it’ll take a lot more than a falling share price to cause him to change his mind. Indeed, being bold in markets can entail outsized gains or alpha. However, patience and boldness will only translate to considerable gains if the right amount of homework is done.

Though Watsa can be proven wrong from time to time, his good bets more than makeup for the less-than-stellar ones. If you believe in Watsa’s investing abilities (he’s referred to as Canada’s Warren Buffett for a reason!) supported by the firm’s continuously improving underwriting talents, the stock looks like a bargain, even as it flirts with new highs.

The firm ended 2022 with a bang. And I think more could be in the books for this year, regardless of what the broad market does next. Prem Watsa is making a comeback, and I think he can help guide his firm to excess risk-adjusted returns in today’s challenging economy.

CN Rail

CN Rail (TSX:CNR) will surely feel the hit when a recession arrives. The difference is that investors know CN will be in a shape to bounce back when the time comes, perhaps in record time. CN Rail stock is quick to get back on its feet because it plays a major role in helping the Canadian economy heal from economic wounds.

With an incredibly wide moat protecting its economic profits and a new CEO (Tracy Robinson) who has shown early signs of his management prowess, I think CNR stock can continue chugging higher from here. The 0.69 beta (meaning less correlation to the TSX) implies CNR is likelier than your average Canadian stock to trade under its own power.

Of course, low beta doesn’t mean corrections and plunges won’t happen. Regardless, I favour CNR stock for its 21.1 times trailing price-to-earnings. It’s a steady performer that has made it through worse times.

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 has positions in Canadian National Railway. The Motley Fool has positions in and recommends Fairfax Financial. The Motley Fool recommends Canadian National Railway. The Motley Fool has a disclosure policy.

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