We’ve heard talk about recession for many quarters now. Thus far, corporate earnings results haven’t been too dismal, at least for the most part. Just because a downturn is projected to be mild or short in duration, though, does not mean it’s okay to neglect value and chase stocks with the biggest bounce-back potential.
Blindly buying falling knives and timing bottoms in markets is a dangerous game. Instead, investors should be aware of the risks that recessions bring, even if most other around you have already prepared accordingly.
In this piece, we’ll have a look at two stocks that I think make for safe investments as the recession nears. Now, it’s hard to tell how a recession will end, as the Federal Reserve in the U.S. continues raising interest rates. On this side of the order, inflation may be tame enough for rates to pause and eventually come back down. In the United States, though, it’s unclear when the Fed will follow Canada’s lead. There’s a chance they may not for quite some time, given the latest inflation number, which was a tad too hot.
In short, a recession could act as a drag on stocks for the year. But that doesn’t mean everything in the market is destined to sink. There are great value names that have what it takes to hang in there. And in this piece, we’ll consider two TSX stocks that could make for steadier bets.
Without further ado, consider Fortis (TSX:FTS) and Hydro One (TSX:H), two steady utilities that I’d look to consider, as the recent relief rally runs its course.
Fortis is a regulated utility play that I consider one of my go-tos when uncertainties mount. Due to its steady cash flows and dividend, FTS stock rarely trades at a discount. After enduring a 22% spill from peak to trough last year, I view today’s $55 entry point as pretty compelling.
The stock boasts a 4.1% dividend yield at writing. That’s skewing towards the higher end. The slightly higher yield is more competitive with bond yields and the modest 19.9 times trailing price-to-earnings (P/E) ratio also makes Fortis a tough defensive to pass up, as markets look to return to risk-on mode for the spring.
Recently, Fortis reported $370 million in fourth-quarter profit. That’s a solid number that’s helped FTS stock power a rally. I think it could last, even if the TSX Index ends up making a return to its late-2022 lows.
For those seeking a higher degree of regulation, I’m a fan of Hydro One, even though shares are pricier than Fortis at 20.5 times trailing P/E. With a 3.1% yield, H stock is also less bountiful. Still, the main attraction to the name is the long-term momentum behind the name.
Indeed, Hydro One stock is on the pricier end of its historical valuation range. Still, for the less competitive yield, you’re getting a lot in the way of certainty. Arguably, Hydro One is a less choppy play than longer-duration bonds, given the pace of rate hikes.
In any case, Hydro One’s dominant position in the Ontario market makes it one of the steadiest cash producers on the entire TSX.