The U.S. regional bank fumbles keep happening, with stocks retreating on the back of the latest round of pressure coming, as PacWest Bancorp (NASDAQ:PACW) tanked more than 50%. It’s ugly out there for the investors in the regionals. It’s hard to tell when the crisis (or contagion) will be over. Regardless, the Canadian bank stocks seem to be feeling the aftershock.
As the stormy weather continues, I think it’s a good time for investors to re-evaluate their portfolio’s overall risk profile. Just have a look at your Tax-Free Savings Account (TFSA) or Registered Retirement Savings Plan (RRSP). Is it overexposed to a certain sector that’s come under pressure of late?
If so, it may be time to consider diversifying away from such areas. That doesn’t need to entail selling stocks after an already sizeable downward move. Instead, it can imply focusing new buys on sectors that would help reduce your portfolio’s dependency on just a few sectors or industries.
As a Canadian investor, you may unknowingly be overexposed to financials and energy. The TSX Index is a financial and commodity heavyweight, with little representation from key sectors like tech. Though U.S. bank failures should not be a concern for Big Six Canadian bank investors, it’s hard to say how much they’ll stand to be impacted by the shockwaves as a new regional seems to be crumbling on any given week.
In this piece, we’ll look at two utility stocks to help you steady the ship as things get a bit stormier.
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Hydro One
Hydro One (TSX:H) is a highly regulated utility with a ridiculously wide moat around its business. The stock strikes me as more of a bond proxy than anything else. Right now, the stock’s sitting at a new all-time high of around $40 per share.
It wasn’t just the risk-off sentiment that helped drive the name higher. Hydro One is a great company with a juicy 2.81% dividend yield that can help investors fight off what’s left of inflation. It’s been an impressive run for the stock, which has more than doubled since bottoming in 2018.
The company’s dominant position in Ontario is remarkable. Although it may be tougher to grow from here, given regulatory roadblocks, I remain a fan of the firm for those seeking to take a bit of risk off the table.
At 22.7 times trailing price to earnings (P/E), you’ll pay a slight premium. However, with a nice payout and a low 0.24 beta (which implies less volatility than the averages), I’d not be afraid to average into a full position over time.
Canadian Utilities
Canadian Utilities (TSX:CU) is another respected utility stock that can help you weather a stormy market. The stock sports a larger 4.61% dividend yield than Hydro One, with a cheaper 16.94 times trailing P/E multiple.
The stock has been range bound ($32-42 per share) for nearly a decade now. After a strong quarterly result (Q1) that saw profit margins rise to 26%, up from 19% over the same period last year due to lower costs, I think CU stock could be a breakout candidate in the second half.
In any case, the stock looks like a great value for investors seeking to take some risk off the table amid banking scares and other macro woes that could be up ahead.
