Canadian investors shouldn’t look to get too greedy again now that U.S. stocks are surging, with tech (last year’s dud) leading the charge. Indeed, fear turned to green so quickly, and there wasn’t even an alarm bell to give us an opportunity to do our buying before the big relief run. Indeed, you had to invest when it hurt to realize the most gains to be had in the latest market run.
Just because others around you are itching to put money in the hottest new artificial intelligence (AI) stocks does not mean you should be inclined to follow the herd. If anything, it may be time to take at least a tiny bit of profit off your biggest tech winners, assuming the market price has now exceeded your estimate of its underlying value.
Undoubtedly, you may need to revisit the drawing board with your financial models, given the events that have unfolded year to date. Of course, there’s AI’s rise. But there’s also that incredibly elusive recession that somehow keeps being delayed or pushed out.
If a recession is still coming (after some delay), preparing with defensive dividend stocks seems only wise. Without further ado, consider the following two names if you seek smoother sailing for your portfolio over the coming quarters.
Hydro One: A value pick for the return of volatility
If volatility reappears in the second half, a stock like Hydro One (TSX:H) may be stock to batten down the hatches. Although sentiment has improved, it’s only smart to be ready for turbulence whenever investors get a tad too greedy and look to chase. Chasing is never good. Look what happened in the chase of 2021 and the painful plunge of 2022.
Hydro One is a regulated utility play that didn’t participate in the big boom or bust. The stock simply marched higher slowly but steadily. Today, the stock is going for $37.30, up just 1% year to date, but a compelling 8.5% over the past year. With a nice 3.2% dividend yield and a modest 21.37 times trailing price to earnings.
That’s not cheap, but given Hydro One’s wide moat in Ontario, I’d argue a much higher multiple may be called for. Indeed, monopolistic positions in a market are worth every penny of premium. And if volatility returns in the second half, H stock ought to be considered by risk-off investors seeking relative value!
The best part of Hydro One is its 0.27 beta. That means shares are less likely to fall when the TSX does. But it also means shares may not boom when the TSX melts up. In any case, lowly correlated stocks are great holds through turbulent climates.
Fortis: A Steady Eddie at a discount
Don’t ever count out Fortis (TSX:FTS) stock, especially after a substantial correction in its share price. Shares are currently in the process of recovering from a 10% drop from its year-to-date peak. Indeed, rate headwinds could weigh on growth prospects, but I think the stock has already suffered so much pain — perhaps too much.
The stock trades at 19.2 times trailing price to earnings, with a 4.03% dividend yield. If rates peak out, inflation continues nosediving, and the economy wobbles, look for FTS stock to be a great performer for long-term investors.
Like Hydro One, Fortis has a low beta (0.20 at writing), meaning shares are less likely to be influenced by news that’s moving broader markets. That’s a good thing if you seek smoother sailing!
