Rates don’t seem to want to back down, and that has many investors on edge. Yes, high rates and their negative impact on stocks were the story of 2022. With the same, old headwinds once again weighing on markets, many may think we’re in for a repeat of the bearish moves we witnessed last year. Indeed, some of the pessimists may be inclined to think the incredible start to 2023 is nothing more than a bear market bounce. Only time will tell where markets go from here, as they continue to falter after failing to break new all-time highs not seen in more than a year and a half.
Either way, I don’t think investors should let the scary headlines dictate what their next investment move will be. Stocks may not be in a bull or bear mode right now. They may be merely consolidating over a period of time. That in itself is as good as a correction if stocks just fluctuate, ultimately going nowhere fast, over the course of a few years.
Staying invested through a recession could prove profitable
As rates climb, I think a Canadian recession will be really hard to avoid. But a recession doesn’t mean it’s time to sell your stocks and hibernate for a few years. Instead, I think it’s a great opportunity to batten down the hatches as you look to make money in hard times.
If you can beat the market averages, I do not doubt that the next year can be profitable for your portfolio, even with a recession and a bit more turbulence served up by Mr. Market. If you can buy the steep drops, like the one we experienced in September, you may very well be able to put the markets to shame as you bag the biggest bargains as markets experience temporary moments of extreme pessimism and uncertainty.
At this juncture, safety stocks seem too cheap, given the turbulence that could lie ahead. In this piece, we’ll check out a low-cost duo that’s worth considering right now.
Hydro One
Hydro One (TSX: H) is a rock-solid utility play that’s worth every bit of its premium multiple over its peer group. With a dominant monopolistic position in the transmission line business in Ontario, Hydro One is pretty much unshakeable, even as economic headwinds soar. The stock got ahead of itself earlier this year and is now on the retreat. Shares are off more than 14% from their all-time highs, thanks in part to broader market turbulence. I view the pullback as a buying opportunity for those looking to prepare their defences for a potential recession.
The stock yields 3.47%, which, while less than the rate of various risk-free assets (think one-year GICs), is still bountiful and poised to grow over time. At 20.2 times trailing price to earnings (P/E), the low-beta utility firm stands out as a prime buy on the dip, whether or not you think 2024 will be an up year for markets.
Pepsi
Pepsi (NASDAQ: PEP) is a consumer staple stock that’s perfect to stash in your portfolio if you’re looking for an all-weather type of investment. The firm is best known for its strong beverage portfolio. However, its stake in snack food makes it a magnificent one-stop-shop defensive mainstay for any risk-averse portfolio.
The stock slipped over 13% from its highs in recent months. With a 2.85% dividend yield and a wide moat in its brands, the stock could prove a smart buy here while everything gravitates lower at the hands of high-rate fears.
