Worried About a Recession? 3 TSX Giants to Outpace the Market

TSX stocks like Constellation Software (TSX:CSU) could be resistant to a recession.

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The global market is on fire this morning. After a regional banking crisis was resolved in the U.S. over the weekend, a major European bank has slipped off a cliff. Investors are worried about a banking contagion like the one we saw in 2008. 

However, this time, the world has far more debt and is much more sensitive to a banking crisis. That’s why stocks, bonds, and oil prices all plummeted this morning. We may be on the verge of a deep recession. If you’re worried about an economic slowdown or recession too, here are some of the best TSX stocks that could help you weather the storm.

Constellation Software

A tech stock isn’t an obvious candidate for recession-resistant TSX stocks. However, I insist that Constellation Software (TSX:CSU) is special. Firstly, the company has always been cash flow positive, unlike frothy startup stocks. Secondly, Constellation Software’s valuation is much more reasonable. The stock trades at just 29.9 times free cash flow per share, which implies a free cash flow yield of 3.33%.

However, the most important reason Constellation is on this list is its durability. This company has been around since the 1990s. It has survived the dot-com bubble, the Great Financial Crisis, the pandemic, and it will likely survive this coming recession, too. 

Nearly half of Constellation’s software clients are government agencies. That’s a sticky source of revenue and free cash flow. It makes the company highly recession resistant. Add this stock to your watch list for 2023. 

Alimentation Couche-Tard

Alimentation Couche-Tard (TSX:ATD) is another excellent large-cap stock to hold in a recession. The company’s network stretches across the world, which means it is well diversified and resistant to a recession in any specific geography. 

Meanwhile, Couche-Tard is sitting on plenty of cash. Many of its recent acquisition deals fell apart. The company has underpaid its dividend for years, too. The payout ratio is just 10% or so. This combination of low payout and lack of acquisitions has helped the company’s cash balance swell to $3.4 billion in cash and cash equivalents. Cash represents 5% of the company’s market value. 

ATD stock is also trading at just 16 times earnings. This implies an earnings yield of 6.25%. A cash-heavy business trading at such an attractive valuation is a great target during any recession. 

Dollarama

The discount-retail business strategy has been thoroughly validated in the past few years. Consumers have turned to low-price grocery and convenience stores during the pandemic lockdown, economic downturn and consequent inflationary wave. 

Now, if the global economy enters a prolonged recession, discount retailers like Dollarama (TSX:DOL) could see their sales surge. Dollarama stock is already up 9.8% over the past year. Meanwhile, revenue and net income have climbed 14.5% and 11.9%, respectively, in the most recent quarter. 

Dollarama stock trades at just 29 times earnings, which makes it an ideal target for investors looking for a recession-resistant bet in 2023.

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 Vishesh Raisinghani has positions in Alimentation Couche-Tard and Constellation Software. The Motley Fool has positions in and recommends Alimentation Couche-Tard. The Motley Fool recommends Constellation Software. The Motley Fool has a disclosure policy.

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