The TSX today continues to experience major volatility, with numbers from the United States only making things worse. Canadians may be set for another climb in interest rates this month as well, as the Bank of Canada remains dedicated to reducing the inflation rate down to 2%.
During this time, there are many analysts and economists who recommend staying the course when it comes to changing up your portfolio. While I certainly do not disagree, there are other considerations as well. This would include the types of stocks that are good to purchase during a recession and the ones to avoid.
Today, I’ll look at two that investors may want to consider when it comes to recession-proofing their portfolios.
Dream Industrial REIT
First up, we have a real estate investment trust (REIT). These have grown in popularity lately, as investors look for ways to increase their passive income. However, not all REITs are great options during a recession.
That being the case, Dream Industrial REIT (TSX:DIR.UN) is one stock I would consider entering a recession. The company remains focused on industrial properties, made up of assembly, warehouses, and distribution centres. These companies tend to be more resilient during recessions and economic downturns compared to their REIT counterparts, as there continues to be high demand for industrial space.
During its most recent earnings report, Dream Industrial REIT announced strong results across the board. Funds from operations increased 13.3%, and its overall portfolio of properties saw net operating income rise an average of 13% as well. Rental income increased 24.7% to $81.5 million, and the stock managed to bring its net loss down to $17.7 million from $442.9 million the year before! It now has $4.7 billion in total equity and a net asset value per unit of $17.03.
That puts today’s price of $14.23 per share at a steal, with the stock offering a 4.92% dividend yield as well. Shares of Dream Industrial REIT are up 34.5% year to date as of writing.
Magna stock
Then, of course, comes the downside. There are certain stocks investors want to simply avoid during a recession or even economic downturn. These tend to be companies that are swayed by market volatility, and it’s likely you can already guess the types of companies that tend to fall first. In particular, though, there are companies that will be hit hard when consumers start seriously cutting back.
One such company that may experience even more volatility in the near future then is Magna International (TSX:MG). Magna stock has already been through a rough time, with the auto-parts company soaring up only to come crashing down with supply-chain disruptions hurting the company. Should we continue to experience issues in this area, Magna stock may take some time to recover — especially as higher interest rates and inflation mean more costs for the company.
Magna stock had a strong quarter, with its sales increasing 11% to US$10.7 billion year over year. Magna stock also managed to increase its adjusted earnings before interest and taxes (EBIT) margin outlook to between 4.7% and 5.1%, narrowing in from its previous 4.1% to 5.1%. However, adjusted EBIT decreased to US$437 million from US$507 million the year before, with higher production costs and “inefficiencies” in Europe. Income, therefore, came down to US$275 million before taxes, practically half of the US$420 million the year before.
Add to this that Magna stock went through with an acquisition recently, and investors simply are not happy with the way the company is managing its cash flow. Given that we’re still in for even more volatility in the future, it looks like this is a stock to avoid for now.
